Gold Price Rally Appears Overextended, Analyst Cautions
Praveen Singh, Senior Fundamental Research Analyst for Currencies and Commodities at Mirae Asset Sharekhan, has expressed a cautious view on the recent surge in gold prices, suggesting that the rally may be overextended. As traders navigate a complex landscape of geopolitical tensions and economic data, the outlook for gold in the coming days remains uncertain.
Recent Performance and Market Dynamics
In the week ending February 6, spot gold experienced significant volatility, ultimately closing with a weekly gain of nearly 1.43% at $4962. This recovery partially offset losses from an all-time high of $5595 reached on January 29, following Kevin Warsh's nomination as Fed Chair. The metal traded between $4402, its lowest level since January 5, and $5092 on February 4. On Friday, it posted a substantial daily gain of 3.87%, closing at $4962, driven by trader wariness over geopolitical risks, particularly concerning Iran. At the time of writing, gold was trading around $5065, up approximately 2% daily, buoyed by a weaker US Dollar Index due to concerns over US treasuries, lower inflation expectations, and healthy risk appetite. Additionally, China's ongoing gold purchases provided support, with the MCX April gold contract rising 2% to Rs 158,570.
Geopolitical Factors Influencing Prices
Indirect talks between the US and Iran in Oman on February 6 concluded without definitive agreements, with both sides remaining divided on key issues such as Iran's ballistic missiles and regional militias. Iran has shown willingness to engage in further diplomatic talks for a nuclear deal, including potentially diluting its stockpile of 60% enriched uranium if sanctions are lifted, as stated by Tehran's atomic chief Mohammad Eslami. Israeli Prime Minister Benjamin Netanyahu's scheduled visit to Washington to discuss US-Iran diplomacy adds to the geopolitical backdrop, which generally supports gold as a safe-haven asset.
Economic Data and Market Indicators
Recent US economic data has presented a mixed picture. New York inflation expectations for January fell to 3.09%, the lowest since July 2025, which is generally positive for commodities. The University of Michigan Sentiment Index rose to a six-month high of 57.30 in January, with one-year inflation expectations dropping from 4% to 3.5%. However, job market indicators showed weakness: weekly jobless claims increased to 231K from 209K, December JOLTs job openings fell to 6542K, the lowest since September 2020, and the job openings rate dropped to 3.9%, the lowest since May 2020. ADP reported only 22K jobs added in January, below estimates. On a positive note, ISM manufacturing expanded for the first time in 12 months, and ISM services beat expectations at 53.8.
Political Developments and Global Factors
Political events are also impacting gold. Japan's PMI Takaichi winning elections on February 8 could lead to increased borrowing and spending, supporting gold prices. In the UK, political turmoil following the resignation of Prime Minister Keir Starmer's Chief of Staff, Morgan McSweeney, adds to uncertainty, which is somewhat positive for the metal.
ETF Holdings and Market Positioning
As of February 6, global gold ETF holdings stood at 99.89 million ounces, declining for the fifth consecutive day but remaining up nearly 1 million ounces year-to-date. Registered COMEX gold inventory also fell for the fifth straight day to 18.37 million ounces, down nearly 1 million ounces YTD and over 24% from a record high in April 2025. CFTC data shows money managers reduced bullish gold bets by 27,983 net-long positions to 93,438, the least bullish in 15 weeks, with long-only positions at their lowest in over 23 months.
China's Role in Gold Markets
The People's Bank of China continued its gold buying spree for the 15th straight month, purchasing 40,000 ounces in January. Chinese regulators have advised financial institutions to reduce holdings of US government bonds due to volatility concerns, though this does not apply to state holdings. China-based investors' Treasury holdings have fallen nearly 50% to $682.6 billion, the lowest since 2008.
US Dollar and Yield Movements
The US Dollar Index was at 96.88, down 0.80% daily on concerns over China reducing Treasury holdings, though treasury yields saw limited action. Two-year US yields decreased by 2 basis points to 3.48%, while ten-year yields remained flat at 3.21%. For the week ending February 6, the Dollar Index rose nearly 1.3%, with two-year yields down 3 bps and ten-year yields down 2 bps.
Upcoming Data and Gold Price Outlook
Key US data releases this week include the import price index, retail sales advance, January nonfarm payroll report, and January CPI. China's PPI and CPI data for January will be released on February 11, and the Eurozone's fourth-quarter final reading is due on February 13. Singh notes that gold's recovery rally from $4402 appears overextended as geopolitical tensions, while elevated, have eased from previous highs. Risk appetite remains reasonably healthy, but traders are focused on upcoming US job and CPI reports, which could influence rate cut expectations. Unless the job report is disastrous, rate cuts may not occur before June. Gold could advance sharply if it breaches resistance at $5125, but it remains vulnerable if nonfarm payroll and inflation data reduce rate cut chances. Support levels are at $4999, $4858, and $4650, with resistance at $5125, $5200, and $5315.
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