Gold experienced its most significant decline since October, retreating from record highs above $US5500 an ounce. A wave of risk-off sentiment spurred a selloff in metals, with investors using precious metals to offset losses in other asset classes, including equities. The rebound of the US dollar further contributed to the downward pressure on bullion, which fell as much as 5.7 per cent during the trading day before recovering slightly. Silver also saw a sharp drop, declining by as much as 8.4 per cent.
Phil Streible, chief market strategist at Blue Line Futures, noted a sense of peak euphoria in the market. Ewa Manthey, commodity strategist at ING Bank, observed that gold is increasingly being viewed as a source of liquidity rather than a safe haven asset. The drop comes after a sustained period of growth where gold prices had surged by more than 20 per cent.
This year, gold has seen significant gains due to heightened geopolitical tensions and concerns surrounding the independence of the US Federal Reserve. However, technical indicators had suggested that a price correction was imminent. Carsten Menke of Julius Baer Group Ltd. stated that the markets’ frothiness and the dominance of flows over fundamentals meant that only a small trigger was needed to initiate a correction.
The relative strength index for gold had spiked above 90, while silver’s reached around 84. Readings above 70 typically indicate that a metal has been overbought and is likely to experience a pause or pullback. Spot gold fell 1.4 per cent to $US5342.45 an ounce, while spot silver decreased by 1.6 per cent to $114.80 an ounce.
