(Bloomberg) — Gold declined for a third day, edging back in the direction of $4,000 an ounce on concerns a prolonged rally has become overheated.
Spot gold slipped to around $4,090 an ounce in early Asian trading on Thursday, reinforcing a technical reset, while investors also weighed the prospects for a US-China trade deal to relieve some of the geopolitical tensions that have bolstered demand for haven assets. The metal has dropped nearly 6% in the last two sessions from a record high.
Technical indicators have shown that the rally was likely overstretched, with this week’s pullback taking some heat out of the market. The so-called debasement trade, in which investors avoid sovereign debt and currencies to protect themselves from runaway budget deficits, has been a driver of gold’s growth since mid-August.
Gold is still up about 55% this year, with prices also supported in recent weeks by bets the Federal Reserve will make at least one quarter-point cut by the end of the year.
“After an overstretched rally, gold is behaving like an elastic band that’s been pulled too far and is now snapping back hard,” said Hebe Chen, an analyst at brokerage Vantage Global Prime Pty Ltd. “Prices holding firm above the $4,000 mark point to a technical reset rather than a fundamental shift, with safe-haven demand and the ‘debasement trade’ still very much intact.”
Traders are also watching potential progress in talks between the US and China following a recent resurgence in tensions between the world’s two largest economies. US President Donald Trump on Tuesday predicted an upcoming meeting with Chinese President Xi Jinping would yield a “good deal” on trade – while also conceding that the talks may not happen.
“Markets are taking a balanced stance toward the trade and geopolitical noise — cautious, yet grounded in a realistic sense of optimism,” said Chen.
Gold edged lower to $4,095 an ounce at 8:05 a.m. Singapore time. The Bloomberg Dollar Spot Index was steady. Silver extended a decline after dropping 7.6% in the past two sessions. Palladium gained, while platinum dropped.
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