Precious metals retreat as gold, silver enter correction phase

[Stacks of precious metal ingots and coins]
matejmo

Gold and silver prices extended their slide on Wednesday, marking a correction after a historic rally, as a stronger U.S. dollar and easing safe-haven demand weighed on the metals.

The risk of a correction in gold and silver has been mounting recently, though robust pre-Diwali demand from key Asian buyers has helped keep prices supported, Ole Hansen, Saxo Bank's head of commodity strategy, said.

However, a very technical extended rally combined with a renewed “risk-on” tone across stock markets, a firmer dollar, and, not least, the start of Diwali—which typically signals softer physical demand from Asia—have made traders increasingly cautious, more focused on protecting gains than chasing new highs.

While the "actual trigger for the dramatic percentage correction on Monday and into the early hours in Asia is unclear," three consecutive and unsuccessful attempts in gold to break above $4,380 probably helped change the mindset, Hansen added.

Spot gold (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) was down 1.5% at $4,063.24 an ounce, and silver (XAGUSD:CUR [https://seekingalpha.com/symbol/XAGUSD:CUR]) dropped 1% to $48.23 at the time of writing.

"For investors that don't have a gold allocation today, it's still a good time to start building a position in gold," VanEck said in a note [https://seekingalpha.com/article/4831775-gold-reaches-all-time-highs-not-too-late-to-invest].

Shares of the world’s largest gold (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) focused exchange-traded fund, the SPDR Gold Shares ETF (NYSEARCA:GLD [https://seekingalpha.com/symbol/GLD]), reached record trading levels while simultaneously hitting its highest relative strength index reading on record on Monday.

GLD, which has been listed since November 2004, surged to $403.30 per share, with its RSI spiking to an extreme 91.47, signaling a strongly overbought condition.

"The latest price action once again underlined the importance of liquidity differences between gold and silver, with the latter seeing liquidity that is roughly nine times lower than golds," Saxo Bank's Hansen said.

"These disparities magnify both rallies and corrections: a surge in buying quickly runs into limited supply, and any shift toward profit-taking produces outsized percentage moves," he added.

MORE ON PRECIOUS METALS, ETC.

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* Commodities: Profit-Taking Hits Gold [https://seekingalpha.com/article/4831721-commodities-profit-taking-hits-gold]
* Gold and silver suffer historic one-day drop but most analysts say long-term uptrend remains [https://seekingalpha.com/news/4506413-gold-and-silver-suffer-historic-one-day-drop-but-most-analysts-say-long-term-uptrend-remains]
* Gold ETF tops record trading high and overbought conditions before retracing [https://seekingalpha.com/news/4506150-gold-etf-tops-record-trading-high-and-overbought-conditions-before-retracing]