Quick overview

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Gold prices fell as much as 6.3 percent, the largest decline since 201, as technical indicators suggested that previous gains might have been overdone. Traders also cited a stronger dollar as detracting from the metals’ appeal; however, the White House’s recent remarks eased concerns about US trade negotiations with China.

 

Significant liquidity was also removed from the market by India, the second-largest gold buyer, which shut down for the Diwali holiday. According to Bart Melek, the global head of commodity strategy at TD Securities, precious metals dealers and market trend watchers “are taking profits after a very robust rally.”

Technical market indicators for gold, he continued, indicated that the recent price increases were historically unsustainable and vulnerable to a reversal.

The drop abruptly ended a spike that had seen both metals reach all-time highs within the last week. Bets on the US Federal Reserve making at least some interest rate hikes had contributed significantly to gold’s rise.

Metals had reached record highs in the previous week, but the plunge abruptly stopped the surge. In addition to the so-called debasement trade, which occurs when investors withdraw from sovereign debt and currencies to safeguard themselves against unmanageable budget deficits, gold had risen sharply due to wagers that the US Federal Reserve would cut interest rates by at least one significant amount by the end of the year.