Gold prices slid below $4,000 an ounce, extending losses from the worst rout in over a decade as progress on a US-China trade deal sapped haven demand.
The spot gold prices fell as much as 3.1% below $3,990 an ounce, following last week’s abrupt halt to rapid advances on concerns the record-breaking rally had run too far.
The United States and China signaled that they were nearing completion of a sweeping trade deal as US President Donald Trump visits Asia for a series of diplomatic engagements. An agreement may ease some of the economic risks and geopolitical tensions that have bolstered the precious metal.
A blistering rally that propelled gold to a record high just above $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 US Federal Reserve 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,” Ole Hansen, head of commodities strategy at Saxo Bank, told Bloomberg News. “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.”
Central bank demand isn’t as strong as it was, and a deeper correction might be welcomed by professional dealers, said John Reade, market strategist at the World Gold Council. He cited suggested $3,500 an ounce as a level that “would be healthy for the gold market, because it still would be a ridiculously high price”.