Gold and silver waver after massive pullback as rally fizzles

Spot gold traded near $4,140 an ounce after tumbling as much as 6.3% in the previous session, the biggest intraday drop in more than a dozen years.

Gold and silver wavered, after suffering their steepest selloffs in years on Tuesday as concern their dizzying rallies in recent weeks had left them overvalued.

Spot gold traded near $4,140 an ounce after tumbling as much as 6.3% in the previous session, the biggest intraday drop in more than a dozen years. Silver edged higher after being down 8.7% at one point on Tuesday. The slumps came after technical indicators showed scorching rallies for both metals were likely overstretched.

The pullback brought an abrupt halt to rapid advances that have been underway since mid-August. The so-called debasement trade, in which investors avoid sovereign debt and currencies to protect themselves from runaway budget deficits, and bets the Federal Reserve will make at least one outsized rate cut by the end of the year have been the main drivers in recent months. Gold is still up almost 60% this year.

The volume of gold futures contracts traded in New York on Friday surged to the highest since 2020, while open interest eased. The moves suggest some investors were liquidating long positions rather than engaging in short-selling, according to Nicholas Frappell, global head of institutional markets at ABC Refinery in Sydney.

“It could also be that people thought — what the hell, most of us are long and at great averages, so it’s a good time to take profit,” he said.

President Donald Trump’s aggressive moves to try and reshape global trade and heightened geopolitical uncertainty have underlined the move higher in precious metals this year. Central banks keen to diversify away from the dollar have kept buying bullion, while there’s also been flows into exchange-traded funds as retail investors tried to get in on the rally.

That’s pushed gold’s 14-day relative strength index into overbought territory for most of the time since the beginning of September.

Citigroup Inc. cut its overweight gold recommendation after the slump on Tuesday, citing concerns about stretched positioning. The bank expects further consolidation around $4,000 an ounce in the coming weeks, strategists including Charlie Massy-Collier said in a note.

“Eventually the older part of the gold bull story — continued central bank demand to diversify away from the US dollar — may come back, but at current levels there is no rush to position for that,” they wrote, adding that prices had “run ahead of the ‘debasement’ story.”