On Tuesday, February 3, precious metals partially recovered their losses after a sharp sell-off that began late last week amid a surge in prices.
During Asian trading, the price of gold rose by more than 3 percent—to $4,822 per troy ounce. Silver gained 5.3 percent—to $83.50 per ounce.
“Investors are buying the dip,” said Yuxuan Tang, head of Asia macro strategy at JPMorgan Private Bank. “That is exactly how the market tends to respond after a drop of around 20 percent.”
The sharp decline in precious-metal prices began on Friday after US president Donald Trump nominated Kevin Warsh as the next chair of the Federal Reserve. That day, gold fell by nearly 9 percent—the steepest one-day decline in more than 40 years.
Warsh’s appointment—whom investors view as a more orthodox figure than other potential candidates—eased concerns about the Federal Reserve’s independence amid the president’s efforts to push for lower interest rates. Trump had previously described the current head of the central bank, Jerome Powell, as a “stubborn mule” for refusing to support deeper monetary easing.
On February 2, gold fell by nearly 10 percent during the Asian session, though part of those losses was later recouped after trading opened in London and New York. According to investors and analysts, the particularly sharp drop in Asia reflected the heavy use of leverage by many regional market participants betting on rising precious-metal prices.
Traders who had opened leveraged positions were hit by margin calls and were forced to sell assets to raise liquidity.
On February 3, Asian equity markets also rebounded after the slump in gold prices spilled over into stocks. South Korea’s Kospi index, which had closed Monday down 5.3 percent, rose by more than 5 percent on Tuesday.
Friday’s rout prompted CME Group—the world’s largest derivatives exchange operator—to raise margin requirements on gold and silver futures. According to investors, the tighter rules, which limit the use of borrowed funds, could put short-term pressure on prices.
JPMorgan, however, stresses that Warsh’s nomination has not altered its fundamental view of the gold market. The bank expects prices to rise to $6,000–6,300 per troy ounce by the end of the year.
The initial impetus for the rally in gold prices came from aggressive bullion purchases by central banks after Russia’s foreign-currency reserves were frozen in response to its full-scale invasion of Ukraine. Over time, the key driver shifted to private investors, who view gold as a hedge against geopolitical uncertainty and the risk of currency debasement in advanced economies.
“This correction has effectively washed out a significant share of speculative demand,” Tang said. “It helps the market return to fundamentals and reassess them.”
The US dollar index slipped by 0.2 percent against a basket of major trading partners, while yields on US government bonds remained stable.