Gold to Snap Nine-Week Winning Run as Heat Comes Out of Rally

(Bloomberg) -- Gold is set to snap a nine-week winning run, following a sharp correction as the market reassessed a rally that had pushed the metal into overbought territory.

Bullion pared losses on Friday after a softer-than-expected US inflation report reinforced bets on further monetary easing by the Federal Reserve. Bond yields inched lower as traders priced in a high likelihood of two rate reductions before the year is over. Lower rates typically benefit bullion as it pays no interest.

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Investors continued to weigh prospects for improved US-China relations, with US President Donald Trump and his counterpart, Xi Jinping, set to meet next week in an effort to deescalate a simmering trade war. A deal would relieve some of the geopolitical tensions that have bolstered demand for haven assets including gold.

A scorching run that began in mid-August and pushed prices to an all-time high of $4,381.52 an ounce on Monday came to a screeching halt the following day, with investors taking profit. The slump coincided with a large outflow from gold-backed exchange-traded funds, which on Wednesday posted the biggest single-day decline in tonnage terms in five months, according to data compiled by Bloomberg.

“The correction looks to be stabilizing, but broader retail participation means volatility will likely remain elevated,” said Saxo Capital Markets Pte strategist Charu Chanana. “The next key resistance sits near $4,148, but a clear break above $4,236 may be necessary to confirm that upside momentum is back.”

Gold is up by around 57% this year, with central-bank buying and the so-called debasement trade — in which investors avoid sovereign debt and currencies to protect themselves from runaway budget deficits — providing support. Bets on easy money by the Fed have also boosted the appeal of non-interest bearing bullion.WATCH: What the new gold rush reveals.Source: Bloomberg

Platinum, meanwhile, jumped as much as 2% before paring gains. The market for the metal in London is showing signs of significant tightness, with prices spiking to a premium of more than $70 an ounce over New York futures on Wednesday. Lease rates have also surged, with the moves echoing the dynamics seen in silver after a liquidity crisis earlier this month.

Spot gold fell 0.4% to $4,108.27 an ounce at 9:56 a.m. in New York. Silver, which reached a record last week above $54 an ounce, dropped — putting it on track for a weekly loss of more than 6%. The Bloomberg Dollar Spot Index was little changed, while platinum fell and palladium was steady.

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--With assistance from Sybilla Gross.

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