Gold price rises above $4,900 as dip-buyers come in amid thin trade

Gold advanced back above $4,900 an ounce as dip-buyers snapped up the metal after a two-day drop.

Bullion rose as much as 2.7% in thin trading on Wednesday, with much of Asia offline due to the Lunar New Year holiday. The metal had lost more than 3% over the previous two sessions.

Throughout the holiday period investors “can reasonably expect a soft patch” for precious metals, analysts at BMO Capital Markets wrote in a note, opening a window for bargain-buying.

Gold had an extraordinary month in January, with prices climbing to successive peaks to top $5,500 an ounce for the first time ever. That ferocious run came to an abrupt halt on Jan. 29 when bullion plunged the most in over a decade.

That historic slump has reset the volatility and gold has been trading in a wider range for the past couple of weeks, according to Ewa Manthey, a commodity strategist at ING Bank.

“Positioning was flushed, liquidity is thinner, and gold is now repricing macro signals much more aggressively so percentage moves look larger even though the broader trend hasn’t changed,” said Manthey.

Many banks, including BNP Paribas SA, Deutsche Bank AG and Goldman Sachs Group Inc., forecast that prices will resume their upward trend, with the factors that underpinned gold’s earlier, steady ascent still intact. These include heightened geopolitical tensions and concerns over the Federal Reserve’s independence.

In the near term, investors will be looking to comments from Fed officials for clues on US monetary policy. An appetite for cutting rates would be a tailwind for non-yielding precious metals – gold rallied briefly on Friday when modest inflation data boosted the case for lowering borrowing costs.

Spot gold rose 2.1% to $ 4,981.13 an ounce as of 2:41 p.m. in New York. Silver climbed 4.5% to $76.80. Platinum rose 3.6% and palladium was up 1.8%. The Bloomberg Dollar Spot Index edged 0.5% higher.

(By Yvonne Yue Li)