Khaberni - Gold continued its losses after its biggest drop in over a decade last Friday, while the gains of silver since the beginning of the year have vanished with the precipitous collapse of the historic rise in precious metals.
The spot price of gold fell by 4.5% to $4,644 at the time of writing this report, and it is now down by about a fifth from its all-time high recorded in the session before last.
Preparation for Exit
Bloomberg quoted former precious metals trader at J.P. Morgan and current independent market commentator, Robert Gutlieb, saying: "The bottom line is that trading was very crowded," adding that hesitation in taking on more risk will limit market liquidity.
The head of trading at Shanghai Sozhou Jiuying Investment Management, Jia Cheng said: "Most buyers who made profits were ready to exit at any moment," adding that the intensive sell-offs were largely driven by gold-based exchange-traded funds, in addition to leveraged financial derivatives.
He added that the extent of Chinese investors' eagerness to buy gold when prices fall will play a pivotal role in determining the market direction from now onwards.
The analyst at Jinroi Futures, Ziji Wu, said: "The impact of increased volatility and the approach of the Lunar New Year will urge traders to reduce their positions and minimize risks," adding that the decline in prices – especially during the peak buying season – is likely to bolster consumer demand in China.
The main reason behind the intensified sell-offs on Friday was the news of U.S. President Donald Trump nominating Kevin Warsh to head the Federal Reserve, which led to a rise in the dollar and a decline in the confidence of investors who were betting on Trump's readiness to allow the currency to depreciate.
Traders view Warsh as the most suitable to combat inflation among the final candidates, raising expectations for a more restrictive monetary policy that would support the dollar and weaken dollar-priced precious metals.
Positive Factors
On the other hand, the head of commodity strategy at Saxo Bank, Ole Sloth Hansen, said: "This is a mass exit and fundamental support will not return until the sell-offs are completed and investors have the opportunity to look ahead."
Deutsche Bank analyst, Michael Hsu, wrote in a note: "The factors affecting the gold price remain positive. Conditions do not seem ripe for a sustained reversal (decline) in gold prices," and he predicted that the price per ounce could reach $6,000 per ounce.
Yesterday, Sunday, J.P. Morgan predicted in a note that increased demand from central banks and investors would push gold prices to $6,300 per ounce by the end of the year 2026 – despite the current price decline in global markets – indicating the continuing role of gold as a safe investment haven amidst uncertainty.
