According to analysts, the previous “violent” decline in precious metals was more akin to a technical correction than a decline in core fundamentals, and the longer-term drivers are still in place.
Exchange-traded funds (ETFs) for gold and silver had a significant decline over the previous several sessions, but they recovered on February 3. Precious metals have recovered from their lows at this time.
According to analysts, the longer-term drivers are still in place, and the “violent” decline in the precious metals was more of a technical correction than a breakdown in the underlying principles.
Prices for gold and silver are rising:
On the MCX, gold futures with a March expiration date increased by about 4% to almost reach Rs 1.5 lakh per 10 kilos. After reaching a new all-time high of Rs 1,93,096 per 10 grams last week, the contracts sharply declined.
Additionally, futures with a June expiration date increased by 4% to Rs 1,52,551 per 10 grams.
In the meantime, silver futures with a March expiration date increased by about 9% to Rs 2,57,480 per 10 grams. After reaching a price of Rs 4,20,048 per 10 grams, the futures had drastically dropped.
Gold, silver ETFs recover:
Early trading hours saw a roughly 10% increase in HDFC Silver ETF, as well as gains of up to 10% in Mirae Asset Silver ETF, SBI Silver ETF, Tata Silver ETF, Groww Silver ETF, UTI Silver ETF, and several others.
While Baroda BNP Paribas Gold ETF, Axis Mutual Fund Gold ETF, HDFC Gold ETF, Nippon India Gold ETF, and a few others gained about 4% apiece, Invesco India Gold ETF and Groww Gold ETF gained over 5%.
Why are the prices of gold and silver increasing today?
A portion of the gold and silver markets’ record-breaking January gains were erased by a major unwind that struck them over the last two days. The decline started when the CME Group increased the margin requirements for both metals, which prompted leveraged traders to dump their holdings and sped up a selling frenzy. Additionally, as markets processed news that US President Donald Trump will name Kevin Warsh—who is seen as a hawkish, dollar-supporting candidate—as the next Federal Reserve Chair, the selloff grew more severe. The change caused the U.S. dollar to sharply rise, which is detrimental to precious metals, and rekindled anticipation of tighter policy.
Extreme overbought conditions exacerbated the drop after gold and silver hit record highs just days earlier, with gold rising more than 20% and silver more than 60% in a month. As liquidity decreased and volatility increased, profit-taking turned into panic selling, according to Hareesh V, Head of Commodity Research at Geojit Investments.
He continued, “The sharp decline is more akin to a technical correction than a decline in core fundamentals, noting that longer-term drivers—geopolitical tensions, central bank buying, and macro uncertainty—remain intact.”
Kyle Rodda, a senior market analyst at Capital.com, was reported by Reuters as stating, “It’s a reasonable call that this is somewhere around fair value potentially, if you consider that we saw a market behaving fairly irrationally for a few weeks there.”
The significant increase in precious metals coincides with growing predictions that the US Federal Reserve would slash interest rates at least twice this year.
