Gold prices extended their decline Wednesday, erasing much of the year's record-breaking rally as investors rushed to lock in profits and analysts warned that speculative trading had reached unsustainable levels.
Gold futures fell 0.5% to $4,087.70 per ounce after Tuesday's 5.7% collapse-the sharpest one-day drop since 2013. Spot gold was down 4% to $4,088.45, according to Bloomberg data, while the metal has retreated roughly 8% from Monday's intraday peak of $4,398 per ounce.
"The catalyst appears to be profit-taking in a market that has been hugely overbought in recent weeks," ING analysts wrote Wednesday. "Clearly, market participants were getting increasingly nervous over the sustainability of the uptrend."
The selloff follows an extraordinary run in which gold surged more than 55% this year, climbing to a record $4,381 an ounce amid central bank buying, rate-cut expectations, and geopolitical tension. UBS analysts led by Wayne Gordon said the current retreat "was largely technical," driven by speculative traders closing positions after months of rapid gains. "With slowing price momentum and rising option volatility, more speculative investors decided to take profit," Gordon told clients.
Russell Shor, senior market analyst at Tradu.com, said gold's slump "is likely to remain volatile in the near term after its steepest one-day drop in over a decade." He added that "the sell-off appears to be largely technical, with profit-taking following an extended period of overbought conditions since September."
Citigroup's commodities team, led by Charlie Masi-Collier, downgraded its gold outlook from "overweight" to neutral, citing heavy concentration in long positions. "Old factors supporting gold, such as continued central bank purchases and diversifying away from the U.S. dollar, may return later," the analysts said. "But at current levels, there's no need to rush into buying, as prices have exceeded the rationale of the 'devaluation story.'"
Some investors say the correction may prove healthy for the market's long-term trajectory. "However painful it may feel for latecomers to the gold rally, the metal could withstand a 10% correction to around USD 3,973 without breaking its bullish narrative," wrote Ole Hansen, head of commodity strategy at Saxo Bank.
The turbulence also spilled into equities. Gold miners Newmont and Barrick lost more than 4% in premarket trading. Silver futures slid more than 6%, while bitcoin rose nearly 5% in morning trade, underscoring a rotation into alternative assets.
Oil prices, meanwhile, climbed on renewed supply concerns and optimism around U.S.-China trade talks. Brent crude rose 1.5% to $62.21 per barrel, while West Texas Intermediate gained 1.6% to $58.12. "Despite the overall bearish sentiment driven by an oil supply glut and weak demand, the risk of supply disruption in hotspots like Russia, Venezuela, Colombia and the Middle East remains in place," said Mukesh Sahdev, founder and CEO of XAnalysts.
