Gold falls back to the ground/ Markets brace for more volatility

2025-10-22 12:48:00, Ekonomi CNA

Gold and silver stabilized on Wednesday, following their biggest sell-offs in years the day before, amid concerns that the rapid gains of recent weeks had made the precious metals overvalued.

Gold traded near $4,140 an ounce after falling as much as 6.3% in the previous session, its biggest daily drop in more than 12 years. Silver rose slightly after falling as much as 8.7% on Tuesday. The sharp swings came as technical indicators signaled that the two metals' consecutive gains had entered overbought territory.

Gold falls back to the ground/ Markets brace for more volatility

The pullback brought an immediate halt to the rapid advances that had begun in mid-August. So-called “depreciation trades,” where investors avoid sovereign debt and currencies to protect themselves from runaway budget deficits, and expectations that the U.S. Federal Reserve will make at least one big interest rate cut by the end of the year, have been the main drivers in recent months. Gold still remains nearly 60% higher since the start of the year.

Although gold's volatility has eased for the time being, traders are using options to hedge against the possibility of further shocks. One-month implied volatility has risen near its highest level since March 2022, indicating that investors are positioning themselves for strong price moves.

President Donald Trump's aggressive moves to reinvigorate global trade and heightened geopolitical uncertainty have fueled this year's surge in precious metals. Central banks, keen to diversify away from the U.S. dollar, have continued their purchases, while there have also been inflows into exchange-traded funds (ETFs) as retail investors have sought to capitalize on the gains.

Citigroup Inc. cut its bullish outlook on gold after Tuesday's decline, warning that the market may be overly invested in the asset. The bank expects a period of consolidation around the $4,000 an ounce level in the coming weeks, strategists wrote.

The influence of political and commercial factors

The market declines also came as investors weighed possible progress in U.S.-China trade talks, after a resurgence in tensions had boosted demand for safe-haven assets. Trump said on Tuesday that an upcoming meeting with Chinese President Xi Jinping would produce a “good deal” on trade, although he acknowledged the talks may not go ahead.

Meanwhile, the partial U.S. government shutdown has left traders without one of their most important analytical tools: the Commodity Futures Trading Commission’s (CFTC) weekly report, which shows the positions of private investment funds and other management institutions in U.S. gold and silver contracts. Without this data, speculators may be more inclined to build large positions in a single direction.

From a technical perspective, gold's move is considered a correction, albeit "a big correction," said Nick Twidale, chief market analyst at AT Global Markets in Sydney.

Volatility in precious metals has spiked in recent sessions as traders seek to hedge against potential declines in other parts of their portfolios, or to profit from declines. A record number of options contracts tied to the world's largest gold-backed exchange-traded fund were traded on both Thursday and Friday.

Meanwhile, silver’s recent moves have been even more extreme than gold’s, with a historic “tightening” on the London market last week pushing prices past a 1980 record. Base prices traded above New York contracts, prompting traders to ship the metal to the British capital to ease the shortage. On Tuesday, warehouses linked to the Shanghai Futures Exchange saw their biggest daily silver outflow since February, while stocks in New York also fell.

In Asian trade, gold rose 0.4% to $4,140.76 an ounce, after falling as much as 2.9% earlier in the day. Silver recovered from a 2.4% decline to trade 0.5% higher at $48.97 an ounce. Platinum fell, after falling more than 5% on Tuesday, while palladium rose. The Bloomberg Dollar Index fell 0.1%./ Monitor