Gold prices moved higher in midweek trading, reversing part of a sharp selloff earlier in the week as investors took advantage of lower levels while positioning ahead of the release of minutes from the US Federal Reserve’s latest policy meeting. The recovery reflects persistent underlying demand for safe-haven assets even after extreme volatility triggered by speculative activity.

Bullion rose by as much as 1.3 percent during thin trading conditions, with several Asian markets closed for the Lunar New Year holiday. The subdued liquidity amplified price swings, but it also created an entry point for investors who had missed the metal’s earlier surge. Gold had declined more than 3 percent over the previous two sessions after a rapid unwinding of speculative positions.

The recent volatility comes after a powerful rally that pushed gold to a record high above $5,595 an ounce in late January. That surge, driven largely by speculative buying and geopolitical concerns, was followed by a swift correction that briefly dragged prices toward $4,400 within just two trading sessions. Despite the sharp drop, gold has since clawed back nearly half of those losses, though price action remains choppy a sign of a market struggling to find equilibrium after an overheated run.

Analysts note that holiday-thinned trading often creates temporary weakness in precious metals, opening windows for tactical buying. This pattern appears to have played out again, with investors stepping in once prices corrected sharply from peak levels.

Despite the recent pullback, major global banks continue to project a constructive outlook for gold. Forecasts from large financial institutions suggest that the structural drivers of the rally remain intact. These include elevated geopolitical tensions, persistent inflation concerns, central bank buying, and growing unease about the independence of US monetary policy.

The immediate focus, however, is on signals from the Federal Reserve. Policymakers held interest rates steady at their January meeting, and investors are now parsing official comments for clues about the timing of potential rate cuts. The release of the meeting minutes later in the day is expected to provide deeper insight into the central bank’s thinking.

Recent remarks from Fed officials reflect a cautious stance. Governor Michael Barr indicated that rates may need to remain unchanged for some time until there is stronger evidence that inflation is returning to the 2 percent target. At the same time, Chicago Fed President Austan Goolsbee suggested that further rate reductions this year remain possible if inflation continues to ease.

This policy uncertainty is crucial for gold because the metal does not generate interest income. Lower interest rates reduce the opportunity cost of holding non-yielding assets, typically boosting demand for bullion. Indeed, gold briefly rallied last week after softer inflation data strengthened expectations of future rate cuts.

Other precious metals also participated in the rebound. Silver rose sharply, while platinum and palladium recorded moderate gains. The US dollar index edged slightly higher, highlighting that gold’s recovery was driven more by risk positioning than currency weakness.

For India, the world’s second-largest gold consumer, the price trajectory has direct economic implications. Elevated global prices translate into higher domestic gold rates, which can dampen jewellery demand but support investment demand through bars, coins, and exchange-traded products. Rural consumption traditionally sensitive to price spikes could soften if volatility persists, especially ahead of key wedding seasons.

From a macro perspective, sustained high gold prices widen India’s import bill, potentially pressuring the current account deficit and the rupee. However, strong prices also benefit domestic gold financing companies and formal retail chains, which often see increased demand for exchange and buyback transactions during volatile periods.

Sectorally, jewellery exporters could face margin pressures if price volatility disrupts orders, while organised retail players may benefit from consumers shifting toward trusted brands during uncertain markets.

The near-term outlook for gold hinges on three variables: the Federal Reserve’s policy trajectory, geopolitical developments, and investor positioning after the recent speculative unwind.