Spot gold turned higher after sliding during the US session on Thursday, clawing back more than $300. Over the full trading day on Thursday, spot prices hit a fresh record high of $5,596.7/oz in early Asian trading, before plunging to $5,105/oz during US hours – an intraday range of nearly $500.

Investors took profits in precious metals to cover losses in equities and other assets, while a rebound in the US dollar added further pressure, triggering the sharp sell-off. Instead of flocking into gold for protection as they usually do, investors this time treated the safe-haven metal as a source of liquidity.

At the same time, gold had already risen for eight straight trading days, with month-to-date gains exceeding 20%. Several technical indicators were already flashing signals that a near-term pullback was possible.

Gold’s Relative Strength Index (RSI) at one point surged above 90. Readings above 70 typically suggest the metal is overbought and may be due for consolidation or a correction. Given how much the market has become frothy and flow-driven rather than fundamentally driven, it does not take much of a catalyst for a pullback to occur.

Since the start of the year, a combination of escalating geopolitical tensions, growing concerns over the Federal Reserve’s independence, and ballooning US fiscal deficits has pushed gold sharply higher. This extends a remarkable rally that began in 2023, which was primarily driven by central bank buying, easy Fed policy and strong demand from Asian investors.

As gold repeatedly prints new all-time highs, its price momentum has attracted investors from all corners of the financial markets – including speculators and retail traders. The magnitude and persistence of the move have gradually constrained banks’ ability to hold positions, reducing market liquidity and amplifying volatility. Bank balance sheets are finite and cannot support unlimited precious metals trading; as dealers pull back risk, trading volumes have declined.

On 30 January local time, the CME (Chicago Mercantile Exchange) issued a notice adjusting margin requirements for certain gold futures contracts. The new margin level is around 6% of the notional contract value, higher than before. The new standard takes effect after the close on 30 January local time.

Market Commentary:

On the 4-hour chart, gold continues to trend lower, despite Thursday’s rebound. UBS Global Wealth Management still views gold as an attractive asset and a powerful hedging tool. With investment demand on the rise, UBS expects gold prices to reach $6,200/oz by the end of the third quarter this year.