Has gold’s rally finally run out of steam?

Bullion notched its biggest one-day decline in more than a decade on easing US-China trade tensions and US dollar rebound

View of the jewellery shop at the Gold Souk in Deira Dubai. Pawan Singh / The National

Bargain-hunting investors could look at the pullback in gold and silver prices as an opportunity to strengthen long positions, according to market experts.

Gold and silver were set for a price correction, with a recent rally to record highs, so there is likely some profit-taking by investors, according to experts. However, the fundamentals haven’t changed, with long-term support still in place.

Gold tumbled more than 5 per cent on Tuesday, marking its steepest one-day drop since August 2020. However, the precious metal was up 1.13 per cent at $4,144.31 at 9.48am UAE time on Wednesday. Silver also tumbled nearly 7 per cent, but was up 1.36 per cent to $49.1.

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A stronger US dollar and heavy profit taking pressured prices after recent record highs, said Bas Kooijman, chief executive and asset manager of asset management company DHF Capital.

“Reduced fears over US-China tensions, optimism that the government shutdown could end soon, and easing concerns over US regional banks boosted the dollar to its highest level in almost a week,” Mr Kooijman said.

“This improved risk sentiment could reduce safe-haven demand and accelerate the pullback in gold. Even so, geopolitical risks in Eastern Europe and the Middle East, alongside expectations of Federal Reserve rate cuts, continue to offer a supportive backdrop, suggesting the metal could find buyers on dips.”

US President Donald Trump said he expected to reach a trade deal with Chinese President Xi Jinping when the two meet next week in South Korea.

Gold prices have risen about 56 per cent this year, reaching an all-time peak of $4,381.21 on Monday, supported by a combination of factors, including safe haven demand on the back of escalating geopolitical tensions and fiscal constraints, expectations of lower rates from the Federal Reserve, and sustained central bank buying.

“It all looks like a classic case of a market with very stretched long positioning, that’s rallied in parabolic fashion for a week or so, finally getting a bit of a reality check,” said Michael Brown, senior research strategist at forex trading broker Pepperstone.

“Naturally, this will prompt the usual round of ‘top pickers’ to declare that the bull run is over, but I’d not be so sure. In the case of gold in particular, this recent rally is the latest leg higher of a bull market that begun in mid-2023. The fundamental bull case still holds water in my mind.”

Ipek Ozkardeskaya, senior analyst at Swissquote, said the metals are now trading in deeply overbought market conditions with heightened volatility.

The gold volatility index spiked this October to its highest level since March 2022.

“If history is any guide, gold retreated 20 per cent following that volatility spike. And given the latest euphoria, crowded speculative long positions and overbought conditions, a further price pullback is possible,” she said.

“Gold has become the go-to asset for global investors – from retail to institutions and central banks – seeking protection from sovereign debt worries, trade and geopolitical jitters and inflation: factors that have become today’s reality. That won’t change overnight. Some, therefore, see the price pullback as an opportunity to strengthen long positions.”

Ashish Vijay, founder and owner of Dubai-based Tiara Gems and Jewellery, said it is good to have a short-term decline in gold prices so that consumer interest in buying physical gold increases.

However, the gold trend still remains strong and upward due to sustained central bank buying, geopolitical tensions and high inflation. Gold prices will go up further in the long term, but this correction is healthy for gold prices, Mr Vijay added.

What could undermine gold prices?

Swiss private bank Lombard Odier maintains a positive outlook on gold and has raised its 12-month price target to $4,600 per ounce.

The risks to today’s high gold prices are a more “restrictive shift” in the Federal Reserve’s monetary policy and a sharp decline in jewellery demand.

While jewellery demand has moderated, it has been offset by demand from exchange-traded funds and central banks, the bank said.

September saw the largest one-month inflow into physically-backed gold ETFs, driven primarily from the US and Europe. European investors were net sellers of gold ETFs between 2022 and 2024, with flows only turning positive this year. Meanwhile, Asian ETF demand, which was strong until May, was relatively stable in the third quarter. This demand could accelerate if US-China trade tensions worsen towards year-end, according to the research note.

Outlook for silver and platinum

“For silver, the supply shortage is likely to remain a significant driver in the next 12 to 18 months, as demand from the renewable energy sector is expected to increase, said Daniela Hathorn, senior market analyst at Capital.com.

“Further rate cuts from the Federal Reserve will also provide further tailwinds. For now, the pullback seems to have found support at $49. There could still be some further downside momentum towards $48.45.”

Silver prices have outpaced gold’s gains with a rise of around 90 per cent this year, following ETF inflows, as well as industrial applications in alternative energy technologies, said Luca Bindelli, head of investment strategy at Lombard Odier.

Platinum’s more than 75 per cent gains this year have followed three years of undersupply, and the broader rise in demand from investors and jewellery markets for alternative precious metals, he added.