Gold Extends Drop as US-China Trade Progress Erodes Haven Demand

(Bloomberg) -- Gold fell — extending its first weekly drop since mid-August — as progress on a US-China trade deal sapped haven demand.

Bullion declined as much as 2.1% to near $4,025 an ounce. The US and China signaled they were nearing completion of a sweeping deal as President Donald Trump visits Asia for a series of diplomatic engagements. An agreement may ease some of the economic risks and geopolitical tensions that have bolstered the precious metal.

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A blistering rally that propelled gold to a record high just above $4,380 an ounce last Monday has since gone into reverse on signs the metal had become overbought. Bullion is still up 54% this year though, 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.

“We’re returning now to a much more fundamental footing and a much more sensible market,” said Kyle Rodda, a senior financial market analyst at Capital.com. “There was a bit of a knee-jerk response because of this US-China trade development, which was much better than anyone was anticipating.”WATCH: What the new gold rush reveals.Source: Bloomberg

This week is a busy one for central-bank announcements, with the Federal Reserve, European Central Bank and Bank of Japan set to make decisions. The Fed is forecast to cut by 25 basis points, while the ECB and BOJ are expected to leave rates unchanged. Lower borrowing costs typically benefit bullion as it pays no interest.

Meanwhile, nearly 1,000 professional gold traders, brokers and refiners have descended on Kyoto in Japan for a conference run by the London Bullion Market Association. Attendance at the gathering — which began on Sunday — is at a record high, with a growing talent war for bullion traders likely to be a hot topic of conversation.

Central bank demand isn’t as strong as it was, and a deeper correction might be welcomed by professional dealers, John Reade, market strategist at the World Gold Council, said at the LBMA event. He cited conversations at the conference that suggested $3,500 an ounce as a level that “would be healthy for the gold market, because it still would be a ridiculously high price.”

Spot gold fell 1.7% to $4,041.98 an ounce as of 10:12 a.m. in London, after losing 3.3% last week. Silver also declined, extending last week’s drop of 6.3%. The Bloomberg Dollar Index slipped 0.1%, while platinum fell and palladium was steady.

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--With assistance from Preeti Soni and William Clowes.

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