Gold is experiencing its most significant daily drop since 2020, primarily driven by profit-taking and a strengthening US dollar. After reaching a fresh record high of $4,381.21 per ounce on Monday, spot gold prices tumbled, falling over 4% to around $4,175. This marks the steepest fall since November 2020.
Several factors contributed to this downturn. Investors are locking in profits after a substantial rally that saw gold prices climb approximately 60% year-to-date. The uptick in the U.S. Dollar Index (DXY), which measures the dollar's strength against a basket of six major currencies, is also putting downward pressure on gold. A stronger dollar makes gold more expensive for buyers holding other currencies, dampening demand.
Improved risk sentiment is further weighing on the precious metal. Optimism surrounding potential progress in trade negotiations between the US and China is drawing investors away from safe-haven assets like gold and into riskier assets such as stocks. White House economic advisor Kevin Hassett's statement that the government shutdown was "likely to end this week" also contributed to easing political uncertainty.
Technical analysis suggests a potential for further correction. Gold appears to have formed a double top pattern on the 4-hour chart, indicating possible exhaustion in the recent uptrend. The metal has broken below the 21-period Simple Moving Average (SMA), suggesting a short-term bearish outlook.
Other precious metals are also feeling the impact. Silver, platinum, and palladium have all experienced significant drops. Spot silver dropped 6.5% to $49.08 per ounce.
Despite the current pullback, gold remains up considerably for the year. Expectations of further interest rate cuts by the Federal Reserve and ongoing demand for safe-haven assets continue to support the metal. Markets are largely anticipating a 25-basis-point rate cut at the Fed's meeting next week, with another reduction expected in December. Gold tends to perform well in low-interest rate environments.
Analysts suggest that any pullbacks in gold prices may be viewed as buying opportunities as long as the Federal Reserve remains on its current rate-cutting path. However, some warn that gold's price has surged beyond its fair value and may be in bubble territory.
Investors are now awaiting the U.S. Consumer Price Index (CPI) data, which was delayed due to the government shutdown and is now due on Friday. This data could influence expectations for future Federal Reserve policy and impact gold prices. The meeting between U.S. President Donald Trump and Chinese President Xi Jinping is also on the horizon.
