Gold prices rebounded on Friday as bottom-fishing buying appeared after a previous strong sell-off, as the market waited for US inflation data - a factor that could shape the next move of the US Federal Reserve (Fed).
The precious metal at one point increased by 1.4%, after plunging 3.2% in the previous session – the strongest daily decrease in a week. The sell-off took place in parallel with fluctuations on Wall Street, as assets simultaneously weakened due to concerns about the impact of artificial intelligence (AI) on corporate profits. The downward pressure on gold is believed to be amplified by margin calls and algorithmic trading activities.
According to Ms. Liu Shiyao, an expert at Zijin Tianfeng Futures, the decline of US stocks has spread to the precious metals market as investors are forced to sell goods to supplement margins. "In many cases, investors hold many types of assets at the same time; when one market is sold off, another market is also under pressure to withdraw capital. However, the impact will not be too great. Gold is still in the accumulation phase," she said.
Mr. Michael Ball, macro strategist at Bloomberg, said that selling activity from commodity trading advisory funds (CTA) using computer models also contributed to accelerating the decline. In addition, part of the pressure may come from profit-taking activities, after gold and silver recovered significantly from the historic plunge at the beginning of the month. Silver alone fell nearly 11% in Thursday's session. Despite strong fluctuations, gold is expected to end the week almost sideways.
Investors are now focusing their attention on the US inflation report released at the end of Friday. Previously, positive January jobs data reduced the urgency of the Fed continuing to cut interest rates in the middle of the year. In a low-interest environment, gold – a non-rotating asset – is often beneficial.
Speaking on CNBC, hedge fund manager David Einhorn said that the Fed may cut interest rates "significantly more" than the current market forecast. He said that Kevin Warsh, who was chosen by President Donald Trump to succeed Chairman Jerome Powell, is likely to pursue a lower interest rate policy as desired by the White House.
Previously, gold set a record above 5,595 USD/ounce on January 29, the peak of a multi-year rally. However, in just the next two sessions, the precious metal lost about 13% as overheated speculation reversed direction.
However, many major banks still maintain positive prospects for this year, saying that the fundamental factors that once boosted the upward momentum – including geopolitical tensions, disputes over the Fed's independence and the trend of shifting away from traditional assets such as currency and government bonds remain. BNP Paribas SA forecasts gold could reach $6,000 by the end of the year, while Deutsche Bank AG and Goldman Sachs Group Inc. also offer optimistic scenarios.
As of 10:20 am in Singapore, spot gold prices increased by 1.1% to 4,977.44 USD/ounce. Silver increased by 1.9% to 76.70 USD/ounce; platinum increased by 1.4% and palladium increased by 2.2%. The Bloomberg Dollar Spot index – a measure of USD strength – edged up 0.1%.
