EFG International cautions that gold prices may face additional downside pressure, citing a combination of geopolitical and macroeconomic factors that could trigger a correction.
The sharp volatility seen after gold briefly touched $5,600 per ounce in European trading on January 29 underscores rising correction risks, according to GianLuigi Mandruzzato, Senior Economist at EFG International. The move highlights how stretched positioning has become following gold’s powerful rally.
Mandruzzato notes that any easing of geopolitical tensions involving Iran—while currently a low-probability scenario—could prompt investors to reassess their exposure to gold, leading to profit-taking in safe-haven assets.
Additionally, the appointment of a new Federal Reserve chair perceived as independent from former President Donald Trump and credible on inflation could strengthen confidence in U.S. dollar-denominated assets. Such a development would likely reduce demand for alternative safe havens, including gold.
As of the latest update, spot gold is trading around $4,874 per ounce, retreating from recent record highs.
Frequently Asked Questions
Why does EFG International see a risk of correction in gold prices?
EFG International points to sharp price volatility after gold briefly touched $5,600/oz, suggesting prices may have moved ahead of fundamentals and are vulnerable to profit-taking
How did recent price action signal correction risk?
The sudden pullback following gold’s January 29 peak highlights how quickly sentiment can shift when positioning becomes crowded, increasing the likelihood of short-term corrections
What role do geopolitical tensions play in gold’s outlook?
Gold has benefited from geopolitical risk premiums, particularly related to Iran. Any easing of these tensions—even if unlikely—could reduce safe-haven demand and pressure prices.
How could the appointment of a new Fed chair impact gold?
A Fed chair seen as independent and credible on inflation could strengthen confidence in the U.S. dollar and U.S. assets, making gold less attractive as a defensive hedge.
Where are gold prices currently trading?
Spot gold is currently around $4,874 per ounce, down from recent record highs but still elevated by historical standards.
