Gold retreated below the $4,900 level in thin holiday trading as the U.S. dollar strengthened, raising fresh questions about whether the recent rebound in precious metals can be sustained. After staging a sharp recovery from last week’s historic selloff, bullion is once again facing pressure from currency markets and shifting investor sentiment.

The move comes amid reduced liquidity due to market holidays in both the U.S. and China, amplifying price swings. With speculative positioning still elevated and geopolitical risk fluctuating, traders are navigating a market caught between long-term structural drivers and short-term technical corrections.

From Historic Rout to Fragile Rebound

Gold and silver had surged earlier this month after collapsing from record highs. Spot gold rebounded as much as 7% to approach $4,990 per ounce, while silver jumped more than 12%, briefly reclaiming levels above $89. The recovery attracted dip-buyers who viewed the sharp three-day plunge as excessive relative to macro fundamentals.

The initial rally in January was fueled by speculative momentum, geopolitical tensions, and concerns surrounding Federal Reserve independence. Chinese funds and Western retail investors accumulated significant exposure, with heavy call-option activity and leveraged ETF inflows accelerating gains. However, the speed of the ascent left the market vulnerable to abrupt reversals.

Silver’s record daily drop and gold’s steepest fall since 2013 marked a classic momentum unwind. As margin pressures intensified during Asian trading hours, forced selling cascaded into global sessions, underscoring how liquidity conditions can magnify volatility.

Dollar Strength and Policy Expectations in Focus

The renewed pullback below $4,900 coincides with a firmer U.S. dollar, traditionally a headwind for precious metals. The Bloomberg Dollar Spot Index edged higher, reflecting investor recalibration of Federal Reserve rate-cut expectations. Even modest adjustments in policy outlook can significantly impact non-yielding assets like gold.

Strategists remain divided. UBS maintains that the correction may offer healthier entry points for long-term investors, while Deutsche Bank continues to project a potential move toward $6,000 per ounce, arguing that geopolitical uncertainty and limited prospects for aggressive global tightening support higher prices over time.

Chinese participation remains pivotal. Ahead of the Lunar New Year, buyers crowded Shenzhen’s bullion markets to accumulate jewelry and bars. Yet state-owned banks in China are tightening controls on gold-related investments to manage volatility, potentially tempering speculative flows when markets reopen.

Geopolitics and Risk Sentiment Add Complexity

Beyond monetary policy, geopolitical dynamics continue to influence gold’s trajectory. U.S.-Iran tensions remain fluid, with discussions of renewed nuclear negotiations potentially reducing safe-haven demand. Any breakthrough could dampen immediate upside momentum, particularly if accompanied by broader risk-on sentiment in equity markets.

Meanwhile, silver’s sharper swings highlight its dual identity as both a precious and industrial metal. Risk appetite in broader markets can drive outsized moves compared to gold, especially when leveraged positioning unwinds rapidly.

Looking ahead, investors should monitor dollar direction, central bank rhetoric, and Chinese demand patterns as key catalysts. While the structural case for gold remains intact, near-term volatility may persist as markets digest shifting macro signals and thinner liquidity conditions.