Gold Reclaims $5K as Fed Cut Hopes Reignite

The precious metal bounced back on bargain hunting and cooling inflation expectations, but volatility is still the name of the game

Gold bounced back to above $5,000 per ounce Friday after traders got a glimmer of hope from inflation data that suggests the Federal Reserve might actually cut rates. The precious metal had gotten absolutely massacred Thursday plummeting from elevated levels earlier in the week after stronger-than-expected jobs data suggested the Fed would hold rates higher for longer. But Friday’s tame inflation reading changed the conversation. If price pressures are actually cooling while the economy remains stable, the Fed might have room to cut rates after all. That prospect was enough to pull gold back from the brink and spark what traders are calling “bargain hunting” after the oversold conditions created opportunities.

Here’s the actual mechanics of why inflation data matters for gold

Lower interest rates benefit non-yielding assets like bullion because investors are willing to hold assets that don’t generate income when the opportunity cost of doing so is lower. If the Fed starts cutting rates, bonds become less attractive relative to gold. The 10-year Treasury yield immediately pushed lower after Friday’s inflation print, and swap traders started pricing in about 50% odds of a third Fed rate cut by December. That’s enough to move markets. Gold rallied as much as 2.5% on the day.

But the broader context here is extreme volatility that’s defining gold’s behavior this year

 The precious metal surged to a record above $5,595 in late January as speculative buying created a bubble that was destined to pop. Then it did dramatically. Gold got hit with a “rapid rout” that pulled it below $5,000 within days. That’s a $600+ swing in just weeks. Those kinds of moves are what happens when you have waves of speculative money flowing in, followed by forced liquidations when momentum reverses. It’s brutal, and it’s chaotic.

What’s interesting is that despite all the choppiness, gold is still set to end this week higher overall. That suggests underlying support exists even after the violent selloff. Traders are calling Friday’s move “position adjustments” and “bargain hunting” basically, people who think gold at $4,900+ is too cheap passing on the opportunity to build positions. That’s not irrational behavior. It’s pattern recognition: gold hit record highs, got overbought, got liquidated, and then stabilized at levels that look attractive relative to where it was trading.

Ewa Manthey, a commodity strategist at ING Bank, captured the mood perfectly

 “The broader backdrop remains one of elevated volatility following this week’s sharp liquidation across precious metals, but today’s move suggests the correction may have overshot, with bargain‑hunting and position‑adjustments now providing support.” Translation: yes, things got crazy. But the selling went too far, and now we’re getting a rebound as rational actors step back in.

There’s also a China factor that’s worth noting

 Chinese markets are closed next week for the Lunar New Year holiday, and demand for precious metals in China has been “frenetic” in recent months. That means some of the volatility we’ve been seeing has been driven by Chinese investors and speculators piling in. When they go on holiday, some of that volatility-generating activity disappears. Commerzbank analysts think precious metals will “consolidate for a while” as Chinese market participantsparticularly active in silver

are unavailable during the holiday break.

The real story here is that gold is trying to find equilibrium after extreme speculation. Record highs at $5,595 were never sustainable. The selloff to below $5,000 was too aggressive. Now at the $5,000 level, gold is probably closer to a fair price where some traders see value and others see reasons to hold. Volatility will likely persist until we get clearer signals about Fed policy, but at least the frantic speculation phase appears to have passed. For now, that’s progress.