Metals rebound, risk appetite improves

Monday ended up being a better session for US and European markets than for Asian ones. By the time Europeans came to their desks, the slump in gold and silver prices was largely over. Precious metals were already licking their wounds and starting to feel better, as buyers stepped in to rebuild exposure on a dip — a dip close to the 50-DMA for both metals.

For gold, the 50-DMA stands more than 20% below last Thursday’s peak, and for silver it is nearly 40% below last week’s peak.

In both cases, it was the 50-DMA that revived the urge to buy. So we have an early answer to a complex question: we still don’t know whether this marks the end of the metals debacle, but dip-buyers clearly re-emerge when gold and silver move below their 50-DMA levels.

The gold volatility index, meanwhile, is cooling — a sign that support near these 50-DMAs could hold. Metals are up again this morning in Asia. Gold trades above $4’800 at the time of writing, while silver consolidates near $83 per ounce, above the critical 38.2% Fibonacci retracement that separates the past years’ bullish trend from a bearish consolidation zone.

We can say it: all’s well that ends well — for now.

Ironically, risk appetite appears to be recovering as investors return to gold and silver. The Kospi rebounded more than 5%, the Nikkei hit a fresh record, and US and European futures are higher.

But gold’s latest behaviour is a concern. Traditionally, gold acts as protection against market risk. But it is now behaving like a risky asset — worse, at times like a meme stock — and its negative correlation with risk assets has faded. Highly speculative, leveraged positioning is largely responsible for this unusual behaviour.

The problem is that most diversified portfolios have exposure to gold, meaning this volatility affects all risk profiles. That is disquieting. It will be interesting to see whether the latest slump helps temper gold’s meme-like symptoms and restores its reputation as a boring, low-risk safe-haven asset. Because today, that description no longer fits.

Still, yesterday’s rebound in gold and silver gave investors a sense of relief.

The FTSE 100, for example, shone in London trading, even though mining stocks — a major driver of the recent rally — opened weaker. Early losses were quickly retraced.

As a result, both the FTSE 100 and the Stoxx hit fresh record highs yesterday — who would have thought — as major US indices flirted with all-time highs.

It looks like the worst could be behind us. With leveraged speculative positions flushed out, investors may feel they are returning to a freshly cleaned playground, albeit cautiously.

The long-term outlook for gold remains bullish. The factors supporting gold prices since last year remain firmly in place: trade and geopolitical uncertainty persists; G7 debt dynamics look increasingly unsustainable and are likely to worsen — not only in the US with the “Big, Beautiful Bill”, but also in Japan and in Europe amid rising defence spending.

Appetite for the US dollar, other major currencies, and sovereign bonds remains fragile, and that should continue to underpin the bullish case for hard commodities.

One factor to watch is the US 10-year yield, which could come under persistent upward pressure if expectations grow that new Fed leadership will seek to shrink the Fed’s balance sheet — pushing yields higher and increasing the opportunity cost of holding non-interest-bearing gold. Whether that would be enough to halt or reverse the metals rally will depend on how quickly trust in the US erodes.

Assuming the worst of the metals stress is behind us for now, attention can turn back to earnings.

Palantir, jumped 5% in after-hours trading after reporting 70% year-on-year revenue growth in Q4, with US revenue up 93%, a sign that AI hype is now turning into hard budgets — exactly what investors have been waiting to see.

Today, AMD is due to report earnings, with the spotlight firmly on AI-related growth. Expectations are high, driven by bets that AI-driven data-centre demand will strengthen further. Last week’s earnings from ASML and TSMC reinforced the view that AI-related compute demand remains strong and is still rising.

How strong? Speaking at CES in early January, AMD CEO Lisa Su pointed to a potentially astronomical increase in future AI compute demand, suggesting the world could require more than 10 yottaflops within five years. A yottaflop represents 10²⁴ calculations per second, meaning 10 yottaflops would be 10²⁵. For comparison, global AI compute today is still measured in zettaflops (10²¹). Lisa Su’s estimate implies a need for thousands of times more computing power worldwide over the next five years.

That sounds dramatic, but computing has experienced leaps of this magnitude before as technologies moved from niche to mass adoption. Lisa Su’s message was simple: AI will require vastly more computing power, and that means more data centres and more chips.

AMD’s earnings and guidance are expected to be strong, judging by Lisa Su’s tone at CES. But any hint of slowing demand — particularly from hyperscale data-centre customers — delays in AI investment returns, or rising debt burdens could quickly rattle sentiment. Last week’s post-earnings slump in Microsoft served as a reminder of that risk.