Gold is attempting to find direction after experiencing a historic plunge, while a rare phenomenon has emerged in the Indian market: gold ETFs have demonstrated stronger inflows than equity funds...
Gold retreated on Tuesday after two consecutive days of gains, with silver also falling, as investors took profits in a volatile market that is still trying to find clear direction following a historic rout.
$XAU/USD (XAUUSD.CFD)$ It once fell by 1.4%, then narrowed its losses, trading slightly above $5,000 per ounce. Traders are focusing on U.S. data released this week for clues about the direction of the Federal Reserve's policy. Despite a decline of around 10% from its record high on January 29, gold prices have steadily risen so far this year.
Hebe Chen, an analyst at Vantage Markets in Melbourne, said the move "points to profit-taking and position trimming rather than a renewed rush to exit the market." She added: "The key is that, despite the recent plunge, gold prices have held above $5,000, a psychological level that could act as a key technical barrier for sellers, although buyers remain cautious amid the volatility."
Precious metals plunged at the end of January after a record spike fueled by speculative trading led to an overheated market. However, many factors underpinning the multi-year rally – heightened geopolitical risks, continued central bank purchases, and investors fleeing sovereign bonds and currencies – remain intact. Many banks and asset management firms, including Deutsche Bank and Goldman Sachs, support a rebound in gold prices, citing these long-term demand drivers.
The People's Bank of China increased its gold holdings for the 15th consecutive month in January, underscoring the resilience of official demand.
Additionally, in January, Indian investors poured more money into gold exchange-traded funds (ETFs) than equity mutual funds. Net inflows into gold ETFs surged to a record 240.4 billion rupees ($2.65 billion), slightly surpassing the 240.3 billion rupees flowing into equity funds, according to data released Tuesday by the Association of Mutual Funds in India. This milestone marks one of the strongest endorsements of gold by local investors in recent years.
In India, these global forces are reinforced by the metal's deep cultural ties, providing additional support for fund inflows.
Christopher Wong, strategist at OCBC Bank, said: "This cleansing was a much-needed reset for gold to resume its gradual uptrend." He added: "The structural drivers supporting gold remain intact. Downward momentum has weakened, and prices have begun to stabilize at lower but still historically elevated levels."
Looking ahead, data releases later this week will provide clues about Federal Reserve policy after U.S. President Trump nominated Warsh as the next Fed chair. Wednesday’s January nonfarm payrolls report is expected to show signs of stabilization in the labor market, while inflation data is due on Friday.
Editor/Doris
