A blistering rally that propelled gold to a record high just above US$4,380 an ounce last Monday has since gone into reverse on signs the metal had become overbought. The so-called debasement trade and bets on Federal Reserve (Fed) rate cuts had been the recent drivers of gains, bringing in retail speculators that helped send prices to overbought territory. Gold is still up by more than 50% this year, underpinned by strong buying from global central banks.
“Gold is going through a long overdue correction, with the driver today being the positive noise on the trade talk front,” said Ole Hansen, the head of commodities strategy at Saxo Bank. “We may have seen the high for the year as a deeper correction may take longer to recover from as traders turn a bit more cautious, and the stock market continues higher.”
President Trump’s shift towards dealing making with China and other countries, alongside a shift in price momentum in the gold market and a possible end to the US government shutdown, is set to propel the metal lower over the coming days and weeks, Citigroup analysts including Max Layton said in a Monday note. The analysts see bullion falling to US$3,800 in the next three months.
Nearly 1,000 professional gold traders, brokers and refiners have descended on Kyoto in Japan for a conference run by the London Bullion Market Association. Attendance at the gathering — which began on Sunday — is at a record high, with a growing talent war for bullion traders.
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Central bank demand isn’t as strong as it was, and a deeper correction might be welcomed by professional dealers, John Reade, a market strategist at the World Gold Council, said at the LBMA event. He cited conversations at the conference that suggested US$3,500 an ounce as a level that “would be healthy for the gold market, because it still would be a ridiculously high price.”
This week is a busy one for central-bank announcements, with the Fed, European Central Bank and Bank of Japan set to make decisions. The Fed is forecast to cut by 25 basis points, while the ECB and BOJ are expected to leave rates unchanged. Lower borrowing costs typically benefit bullion as it pays no interest.
Spot gold had fallen 3.0% to US$3,988.69 an ounce as of 3.46pm in New York on Monday, after losing 3.3% last week.
Uploaded by Isabelle Francis
