By Ahmad Assiri, Research Strategist at Pepperstone
Gold continues to climb above the $5,000 per ounce level, which in itself is an important signal following the recent bout of sharp volatility. Notably, the metal has staged a strong recovery, rising by roughly 15% from its low after undergoing a steep correction. The initial selloff bore the hallmarks of a positioning- and leverage-driven liquidation, rather than a deterioration in the underlying fundamental narrative.
Heavily leveraged long positions were forced to reduce exposure in what amounted to a rapid and arguably exaggerated selloff across the broader metals complex.
From a price action perspective, the early phase of the rebound points to a V-shaped recovery, reflecting how quickly leveraged positioning has re-entered the market. That said, given the speed of the advance and the role leverage played in the prior drawdown, a period of consolidation would likely be healthier. A more gradual W-shaped recovery would allow excess leverage to be worked off, volatility to be absorbed and the broader uptrend to re-establish itself on more stable foundations.
Crucially, the fundamental backdrop for gold remains largely intact with central bank demand continues to provide a bid, reinforcing gold’s role as a strategic reserve asset. At the portfolio level, bullion still offers attractive diversification benefits relative to equities, with low correlation over the medium term even after accounting for the recent volatility as well as expectations around monetary policy remain supportive, while persistent geopolitical risks continue to underpin demand. From this perspective, the pillars supporting gold today look broadly similar to those in place prior to Friday’s correction.
Looking ahead, higher margin requirements could support a normalization in positioning and volatility. Even so, volatility is likely to remain elevated in the near term as markets continue to digest the recent meltdown and reassess risk appetite.
From a price-path standpoint, the recovery may prove uneven, with my basing process closer to a W-shaped formation appearing plausible. Beyond this consolidation phase, the broader trajectory still tilts higher, with the medium to long term outlook remaining consistent with a move toward the $6,000 per ounce region over the course of the year, assuming macro conditions continue to evolve along current lines.