(Yicai) Oct. 20 -- Gold and silver prices reached new highs before pulling back at the end of last week, with analysts warning investors to be mindful of short-term volatility risks.

Spot gold peaked at USD4,379.38 per ounce in London on Oct. 17 and then closed down 1.8 percent at USD4,247.17, while spot silver ended 4.1 percent lower at USD51.87 per ounce after hitting USD54.44 intraday.

Precious metal prices have rallied this month for a number of reasons, including an expected interest rate cut by the US Federal Reserve, which would weaken the US dollar and lower real rates, enhancing gold's appeal as a non-yield asset, Gu Fengda, chief analyst at Guosen Futures, told Yicai.

Other reasons are heightened geopolitical uncertainty that sustains safe-haven demand, and steady inflows from official reserves and institutional investors that underpin market demand, Gu added.

Supply inelasticity is another crucial element, according to Xia Yingying, precious metal analyst at Nanhua Futures.

"Precious metal mining requires substantial investment and long development cycles, making quick production increases difficult," Xia noted. “Silver, primarily produced as a by-product, has even less supply flexibility than gold, making prices particularly sensitive to demand changes.”

"Rising sovereign debt levels in the United States and other nations, coupled with recent concerns about the Fed's independence, have sparked fear of worsening deficits and further currency devaluation, driving investors toward precious metals," said Wu Zijie, precious metals researcher at JRJ Futures.

With prices elevated and volatility heightened, investors should be careful and avoid indiscriminately chasing gains, Xia cautioned.

"While medium- to long-term bullish predictions remain valid, short-term volatility risks have notably increased," Gu noted, recommending that investors keep small positions, buying gradually when prices dip, and managing risk carefully to avoid buying at the peak.

Editor: Futura Costaglione