(Jan 29): Gold surged to a record above US$5,500 an ounce, as a lack of liquidity accelerated a nine-day rally fuelled by a weaker dollar and investor flight from sovereign bonds and currencies.
Bullion jumped as much as 3.2%, building on a 4.6% leap in the previous session — the biggest one-day gain since the height of the Covid-19 pandemic in March 2020. Precious metals have risen dramatically this year on heightened geopolitical tensions and worries about the independence of the Federal Reserve (Fed), which have supported the debasement trade. Silver also hit an all-time high on Thursday.
Spot gold has surged by about 28% this year, and silver by nearly 65%. The scorching rallies have constrained banks’ ability to take positions, leading to thinner liquidity and greater volatility, said Simon Biddle, head of precious metals at broker Tullet Prebon, part of TP ICAP Group.
“Banks don’t have infinite balance sheets to trade precious metals,” he said. “Trading volumes have decreased as they are taking less risk.”
Volatility may also have been amplified by a so-called gamma squeeze — a technical pattern whereby dealers who sell cheap options are forced to buy bullion futures as a hedge. In a thin market, a sudden price rise can increase the urgency to buy futures, reinforcing a rally without fresh physical demand.
See also: Gold climbs above US$5,400 as traders eye dovish Fed policy shift
“The market suddenly broke higher and then sold off,” said Nicholas Frappell, global head of institutional markets at ABC Refinery in Sydney, citing this as a possible indicator of such a squeeze.
The moves higher came as traders looked beyond the Fed’s widely expected decision on Wednesday to leave interest rates unchanged and ramped up bets on a dovish policy shift, which would benefit non-yielding precious metals. BlackRock Inc’s Rick Rieder — an advocate for more aggressive rate cuts — has emerged as a top contender to replace Jerome Powell as Fed chair later this year.
The debasement trade is also driving gold, with last week’s massive selloff in the Japanese bond market the latest example of concerns over heavy fiscal spending. Speculation the US may intervene to support the yen has weighed on the dollar, making precious metals cheaper for most buyers.
See also: Gold hits record above US$5,300 as Trump dollar comments aid rally
US President Donald Trump said this week he was not concerned about a drop in the dollar that dragged the world’s premier reserve currency to its weakest level in nearly four years, although Treasury Secretary Scott Bessent later said the administration supports a stronger currency and ruled out intervention to sell the dollar against the yen.
The White House’s actions — threats to annex Greenland and military intervention in Venezuela — have unsettled markets in recent weeks. The US leader on Wednesday warned Iran to make a nuclear deal or face military strikes, and in recent days has threatened both South Korea and Canada with additional trade tariffs.
“Gold and silver are the ultimate safe-haven assets against extreme risk as geopolitical turbulence continues,” said Hao Hong, chief investment officer at Lotus Asset Management, and an influential Chinese commentator with a large social media following. “Gold is the anchor of all valuations: as long as gold rises, other precious metals will surge as well.”
Silver rose as much as 2.3% to a record above US$119.40 an ounce, its sixth straight day of gains. The white metal’s dramatic surge prompted CME Group to raise margins on Comex silver futures with effect from Wednesday’s close. In China — where prices have ballooned beyond international benchmarks — the only pure-play silver fund turned away new investors while local authorities in Shenzhen set up a task force to oversee the operations of a gold-trading platform.
Gold rose 2% to US$5,526.72 an ounce as of 11.20am in Singapore, having earlier hit an all-time high of US$5,588.71. Silver climbed 0.7% to US$117.47 an ounce. Platinum rose, while palladium edged lower. The Bloomberg Dollar Spot Index fell 0.2% on Thursday and was down 1.4% for the week.
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