Gold prices were back in the red on Wednesday morning, giving up gains from earlier in the session, after a dramatic 5% plunge in the previous session.
Gold futures dropped 0.5% to $4,087.70 per ounce, while spot gold retreated 4% to $4,088.45 an ounce, at the time of writing.
“The catalyst appears to be profit-taking in a market that has been hugely overbought in recent weeks,” ING analysts wrote. “Clearly, market participants were getting increasingly nervous over the sustainability of the uptrend.”
The sharp selloff in the previous session was largely attributed to easing tensions between the US and China, but traders remain on edge ahead of delayed US inflation data and upcoming trade talks involving the US, China, and India.
Despite the dip, gold is still up 56% year-to-date, having reached a record high of $4,381 just days ago. The rally has been fuelled by strong central bank buying, geopolitical tensions, and growing expectations that the Federal Reserve may soon cut interest rates.
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After Tuesday’s decline, Citigroup downgraded its outlook for gold, moving from an “overweight” recommendation to a more cautious stance. The bank’s commodities research team, led by Charlie Masi-Collier, warned of an excessive concentration in long positions and suggested that gold prices may enter a period of consolidation around the $4,000 per ounce mark in the coming weeks.
“Old factors supporting gold, such as continued central bank purchases and diversifying away from the US dollar, may return later,” Citigroup analysts said. “But at current levels, there’s no need to rush into buying, as prices have exceeded the rationale of the ‘devaluation story’.'”
Oil prices jumped on Wednesday morning, lifted by renewed supply concerns tied to geopolitical tensions and optimism around US–China trade negotiations. News that the US is seeking to refill its strategic petroleum reserves also helped buoy market sentiment.
Brent crude futures rose 1.5% to $62.21 per barrel at the time of writing, while West Texas Intermediate futures gained 1.6% to $58.12 a barrel.
The gains mark a recovery from a five-month low touched on Monday, when oversupply concerns and sluggish demand, exacerbated by trade friction, weighed heavily on prices.
Geopolitical tensions added fresh supply-side risks, with reports that a planned summit between US president Donald Trump and Russian president Vladimir Putin has been postponed. Traders also reacted to mounting Western pressure on Asian buyers to curb their purchases of Russian crude, which stoked fears of disruption.
