Gold Rises, But Rally Moderates After Epic Moves.

If evidence were needed to demonstrate China's outsized impact on the gold market these days, then we saw it this week. With Chinese traders absent for New Year festivities, the gold market found a degree of price stability, its traditional macro drivers leading intraday moves gently higher in relatively thin trading conditions. Gone was the exuberance.

This week brought modest tailwinds for gold. The US dollar softened slightly, and the benchmark 10-year US Treasury yield edged lower toward the 4% level, following doubts around US trade policies and weaker US economic data, which lifted gold prices. Gold breached overhead chart resistance, but momentum has eased.

Gold now sits about 7% below its all-time high achieved one month ago. It has surpassed the 50% retracement level after its recent epic decline, a point gold bulls cite as confirmation that the rally since 2022 remains intact. Bears counter that the market is still technically overbought and that upside momentum has reached exhaustion. In reality, this bull run shows resilience; retail buyers have not been deterred by record prices nor significant volatility. Indeed, interest in gold has broadened demographically, drawing in younger investors and by product, with gold-backed tokens hitting an all-time high of over $6.12 billion, a nearly 30% gain year to date.

Although gold breached the psychologically important $5,200 mark last night following Donald Trump's State of the Union speech, where he emphasised the need for tariffs, conviction towards gold as a safe haven asset is steadier. However, the fundamental rationale for long-term gold ownership remains firmly in place.

The recent price correction triggered a sharp decline in speculative net-long positions on COMEX, falling this week to the lowest levels since early 2024 as longs capitulated. However, fresh buying emerged this week, which contrarians may view as a sign that, after the shakeout, the market now has scope for further recovery.

Conversely, institutional demand via gold ETFs has been lacklustre this week since the sharp correction. While January saw solid gains of 120 tonnes, pushing total holdings to an all-time high of 4,130 tonnes, modest net outflows have followed, likely reflecting damaged confidence amid high price volatility

In summary, gold continues to see a steady recovery, supported by ongoing geopolitical uncertainty over US-Iran tensions and trade worries around tariffs. Arguably, the sell-off has purged weaker hands, leaving the market better positioned for more modest gains. Meanwhile, silver acts like "gold on steroids," mirroring gold's moves but with a roughly threefold amplifier just now, driven by strong speculative flows. Fundamentally, silver remains attractive amid persistent supply deficits, with market tightness driving high borrowing costs while declining inventories in both New York and Chinese exchanges are adding to the positive sentiment. 

Notes 

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