After witnessing one of the sharpest two-day corrections in recent memory, gold and silver prices stabilised on February 3, triggering a rebound of up to 10 percent in domestic exchange traded funds tracking the precious metals.

The recovery follows a disorderly selloff that began after CME Group raised margin requirements for gold and silver futures, forcing leveraged traders globally to unwind positions. The liquidation intensified as markets reacted to reports that US President Donald Trump is set to nominate Kevin Warsh, considered a hawkish and dollar-supportive candidate, as the next Federal Reserve Chair. The development pushed the US dollar higher, a move that typically pressures precious metal prices.

The combination of margin stress, profit booking from record highs, and thin liquidity resulted in what analysts describe as a “technical flush” rather than a shift in the underlying demand dynamics for precious metals.

On the MCX, gold futures with March expiry rebounded nearly 4 percent to approach the ₹1.5 lakh per 10 grams level, after having fallen sharply from a lifetime high of ₹1,93,096 per 10 grams recorded last week. June expiry contracts also gained around 4 percent to ₹1,52,551 per 10 grams.

Silver saw an even sharper recovery. March futures on MCX rallied nearly 9 percent to ₹2,57,480 per 10 grams after correcting steeply from an earlier high of ₹4,20,048 per 10 grams.

This price action quickly translated into ETF performance. Silver ETFs led the rebound with gains of up to 10 percent in early trade. Gold ETFs also recovered between 4 and 5 percent as investors returned after the panic-driven selling.

Analysts tracking the commodity space argue that the violent fall was amplified by extremely overbought technical conditions. Silver had surged more than 60 percent in a month while gold had rallied over 20 percent in January before the correction began.

According to Hareesh V, Head of Commodity Research at Geojit Investments, the fall was a cascading reaction to margin stress and profit taking rather than deterioration in fundamentals. He noted that key structural drivers for precious metals remain in place, including geopolitical tensions, central bank gold accumulation, and global macroeconomic uncertainty.

Another factor aiding the recovery is the growing expectation that the US Federal Reserve may deliver at least two rate cuts this year. Lower interest rate expectations reduce the opportunity cost of holding non-yielding assets such as gold and silver, providing medium-term support.

For Indian investors, the episode highlights the transmission of global derivatives market dynamics into domestic commodity and ETF prices. Margin changes in global exchanges can trigger volatility in Indian markets even in the absence of local demand or supply shifts.

The rebound in ETFs suggests that investors are treating the correction as a buying opportunity rather than a signal of a trend reversal. The recovery also underscores how quickly sentiment in precious metals can shift when leveraged positions are unwound.