Gold prices dropped below $2,000/oz on Tuesday as the dollar clung to recent gains and risk appetite was boosted by an expected US stimulus deal, prompting investors to take profits from bullion’s explosive run to a record high.
Spot gold fell 3.8% to $1,949.97/oz by 11:20 a.m EDT, while US gold futures slipped 4.2% to $1,952.10/oz in New York.
“The retreat was inevitable,” StoneX analyst Rhona O’Connell told Reuters, adding that gold has been technically overbought for a while.
The fact that gold did not advance further despite rising geopolitical tensions showed that a lot of supportive elements for gold have already been priced in, she explained.
“The recent washout of speculative long positioning sets gold up for a more balanced rally going forward.”
Jeffrey Halley, senior market analyst at OANDA
Meanwhile, global equities hit multi-month highs on expectations that US Congress will agree a massive stimulus deal. Looming US-China trade talks have also raised hopes that geopolitical tensions would ease between the world’s two superpowers.
“Beyond technical triggers, the fundamental reason for gold’s moves is that the dollar weakness of the past few weeks has paused,” Saxo Bank analyst Ole Hansen said.
But most analysts still expect a positive trajectory for gold, with the metal having gained more than 30% this year as unprecedented money printing by central banks and near-zero interest rates pushed investors into bullion as a hedge against possible currency debasement and inflation.
“It’s quite easy to see gold going to $4,000/oz,” Frank Holmes, CEO at investment firm U.S. Global Investors, told CNBC earlier this week.
He pointed to the trillions of dollars needed in stimulus to tide the US economy during the coronavirus pandemic, and added that G-20 finance ministers and central banks are “working together like a cartel and they’re all printing trillions of dollars.”
However, Yung-yu Ma, chief investment strategist at BMO Wealth Management, warned that factors such as the development of a coronavirus vaccine and the November elections could change the fortunes of the precious metal.
Earlier, Russia President Vladimir Putin announced that his country had become the first to grant regulatory approval to a covid-19 vaccine after less than two months of human testing.