Market News

(Bloomberg) -- Gold rose for a second day, rebounding above $5,000 an ounce as dip buyers snapped up precious metals following a historic collapse from record highs.

Bullion climbed as much as 2.9% on Wednesday, after a gain of more than 6% in the previous session, as a risk-on tone returned to markets and the US dollar weakened. The yellow metal was roughly 10% below an all-time high hit on Jan. 29 — but was up around 17% for the year. Silver also advanced.

“Forced sales have likely run their course in precious metals,” Daniel Ghali, a senior commodity strategist at TD Securities, said in a note. “The intense volatility over the last week could certainly keep retail participants on the sidelines, removing an increasingly important cohort of buyers.”

Precious metals soared last month in a rally underpinned by speculative momentum, geopolitical upheaval and concerns about the Federal Reserve’s independence. However, market watchers had warned that the advances had been too large and too swift. The surge came to a sudden halt at the end of last week, with silver seeing its biggest daily drop on record and gold plunging the most since 2013.

Chinese funds and Western retail investors had built up large positions in precious metals, and further fuel was added by investors piling into leveraged exchange-traded products and a wave of call-options buying. A sudden collapse during Asian trading hours on Friday continued into the early part of this week.

Mainland China’s four largest gold-backed exchange-traded funds saw combined outflows of nearly $1 billion on Tuesday, according to data compiled by Bloomberg — the biggest ever one-day decline and a sign of how investor confidence has been rattled. Last week, the same ETFs were notching record inflows.

Still, investors and analysts believe the fundamentals that drove bullion to record highs remain intact. Fidelity Fund, which sold a chunk of gold holdings days before the plunge, is watching for an opportunity to buy again, portfolio manager George Efstathopoulos told Bloomberg News.

Many banks have backed gold to recover, with Deutsche Bank AG saying on Monday that it was standing by its forecast for bullion to rally to $6,000 an ounce. Goldman Sachs Group Inc. analysts Lina Thomas and Daan Struyven said in a note that they see “significant upside risk” to their year-end forecast of $5,400.

Volatility in precious metals will remain elevated, according to Bank of America Corp. Gold has a stronger, longer-term investment thesis than silver, said Niklas Westermark, head of EMEA commodities trading at BofA. While inflated prices and market turmoil may affect position sizing, it won’t dampen overall investor interest, he said.

Gold has also drawn support from ongoing geopolitical tensions, as strains between the US and Iran intensified following the US Navy’s downing of an Iranian drone. President Donald Trump, however, reiterated that diplomatic talks between the two countries are ongoing.

Bullion was  higher $ an ounce as of  in Singapore. Silver advanced  to $. Platinum and palladium also rose. The Bloomberg Dollar Spot Index, a gauge of the US currency, was little changed after ending the previous session down 0.3%.

--With assistance from Yvonne Yue Li, Bernadette Toh and Ruth Carson.