Source: Cailian
Gold prices have been hit sharply after continuing to rise over the past period, hitting the biggest single-day percentage drop in more than a decade, according to Fed on Tuesday.Many analysts believe that this is an early sale, but that may not mean that the rise in gold prices will end there.
"It's kind of like gold hitting an unexpected pit on an otherwise clear highway." Adam Koos, president and senior financial advisor at Libertas Wealth Management Group, said Tuesday that "it's been running smoothly for a while, but every now and then the market is slamming the brakes to make sure passengers are still awake."
International gold prices fell sharply on Tuesday, partly due to investors' gains after U.S. interest rate cuts and recovery demand pushed a record rise.
In December, the New York Commodity Exchange gold futures yielded $4109.10 per ounce, down by 5.7 percent. According to the analysis of FactsSet data by Dow Jones Market Data, this was the largest single-day percentage drop since June 20, 2013. While the current gold price plate fell by 6.3 percent, the drop set the record for the largest single-day drop since April 2013, eventually falling by 5.3 percent to $4123.85 per ounce.
StoneX market analyst Fawad Razaqzada said gold had reached a record high on Monday and subsequently dropped significantly on Tuesday, raising doubts as to whether the price has reached its peak or is just a short-lived recession.
In a report on Tuesday, he wrote that Tuesday was “a day of great hurt in the precious metal sector, given that the price of gold soared all the way before, and that the sale would happen sooner or so.”
While "currency depreciation trading" and investors' defensive sentiment drove gold prices higher, Razaqzada noted that several factors weakened this defensive sentiment this week. These factors include easing trade tensions, falling safe-haven demand, a rebound in the US dollar and gold investors preparing to take profits.
However, the fall on Tuesday may not mean the rise has ended.
Razaqzada said it is still too early to think that the overall bull market trend has ended, although the feedback is normal, but it is worth noting that many investors have missed this round of rise.
Even considering the fall on Tuesday, gold futures prices have so far risen by 56 percent this year.
Juan Carlos Artigas, chief executive of the World Gold Association (WGC) for the Americas and head of global research, said on X Tuesday that while some may think gold is expensive, “it’s not the case compared to global stock markets.”
He added: “(Gold) prices are not isolated.Value is always related to the broader market environment.”
Artigas said it is normal for financial markets to pull back after a period of rapid gains, as gold has experienced. He said in emailed comments that although the performance of gold prices in the past few weeks has been driven by momentum factors, "we think the rise in gold prices has also been driven by strong fundamentals, such as rising geoeconomic uncertainty, the steady increase of the U.S. money supply, and interest rate cuts."
"Our analysis shows that the gold investment market is not yet saturated and there is still room for growth," he said.
The weekly chart released by the World Gold Council (WGC) on Monday showed that the value of gold, represented by the London Bullion Market Association (LBMA)'s weekly average afternoon gold pricing, is still well below the historical highs since the 1980s relative to global stock markets represented by the MSCI World Index.
In the report, the WGC said: “We still believe that gold is currently under-stocked ... with the support of constructive fundamentals and increased global liquidity, there is still room for further rise in gold prices.”
Libertas Wealth Management's Koos also noted that the fall in gold prices "doesn't look like the big sell-off everyone is waiting for." Instead, he said,"It looks more like a recalibration after a long and smooth period of gains."
“The price of gold has continued to rise for weeks, so some of the profits, and even dishwashing like that, are helping to clear short-term speculators before the potential next wave of rise,” Koos said.
He said at the moment, the latest move in gold “feels more like a midway stop than the end of the journey.”