Tuesday (February 3) Asian morning session saw a sharp rebound of over 3.5%, briefly returning above the $4818 level, demonstrating strong buying support on dips. This kind of sharp decline followed by a rapid rebound often indicates that short-term capital, rather than long-term investment logic, is the dominant force.
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Focus: Multiple Factors Trigger Technical Selloff
The recent drop in gold prices was not caused by a single negative factor, but rather a perfect storm created by the rapid convergence of multiple elements.
Firstly, a subtle shift in policy expectations served as the initial spark. U.S. President Trump's nomination of former Federal Reserve Governor Walsh to replace Powell as the next Fed Chair initially was interpreted by the market as potentially leaning toward rate cuts. However, his historical label as an "inflation hawk" and his statements on pursuing a stricter balance sheet policy have raised concerns about a potential marginal tightening of liquidity, increasing uncertainty about the future direction of Fed policy and directly reducing gold's appeal as a hedge against loose monetary policy.
Secondly, the exchange's actions intensified the sell-off. The Chicago Mercantile Exchange announced an increase in margin requirements for precious metals futures trading following sharp price swings. At a time when market sentiment was already fragile, this risk-control measure significantly increased the cost of holding speculative positions, forcing many speculative long positions to be liquidated, creating a vicious cycle of 'decline - forced liquidation - further decline,' amplifying the price drop.
Finally, the U.S. dollar and overall market sentiment added fuel to the fire. The U.S. dollar index rose to a one-week high during this period, making gold priced in dollars more expensive for holders of other currencies, suppressing demand. Meanwhile, the sharp volatility in the precious metals market triggered broader risk-off sentiment, prompting some funds to flow out of gold ETFs and into cash, further increasing selling pressure.
Future Outlook: The Battle of Three Key Variables
The future direction of gold prices will depend on the interplay of several key variables.
The first key variable is the actual policy stance of the "Walsh-led Fed." Markets are urgently assessing the true policy orientation of the nominee, Walsh. Will he follow the dovish inclination suggested by his nomination, or revert to his earlier hawkish stance? Particularly important is how he balances his statements favoring rate cuts with his push for a reduced balance sheet. Any signals indicating a tightening of financial conditions could weigh on gold prices in the short term, while a focus on supporting economic growth and tolerating higher inflation could benefit gold over the long run.
The second variable is the resilience of macroeconomic data. Recent indicators suggest a rebound in U.S. manufacturing, but widespread pessimism about trade policy uncertainty and the emergence of "anti-American buyer sentiment" indicate that the recovery remains fragile. Additionally, the partial U.S. government shutdown **may delay** the release of key employment data, increasing market information asymmetry. Whether gold regains favor will depend on whether the economy moves toward a "soft landing" or experiences renewed setbacks—the latter would quickly reignite gold's safe-haven appeal.
The third variable is market confidence and capital flows. This sharp drop served as a stress test for investor sentiment. Currently, buying on dips remains active. Going forward, it will be crucial to monitor whether global gold ETF holdings stabilize and resume inflows and whether central banks continue their gold-buying trend. If long-term allocation demand from institutional and individual investors remains strong, this volatility will be seen as merely a temporary ripple in the long-term trend.
