Gold prices experienced their largest one-day drop since December, with investor concerns rising over the possibility that the recent rally in the precious metal may have been excessive.
After tumbling 1.6% on Friday, spot gold traded near $2,886 an ounce, following a surge that saw the metal hit a record high of $2,942.68 earlier in the week.
The decline was partly attributed to technical factors, including the 14-day relative strength index (RSI), which signaled that gold had reached overbought levels. The RSI, a tool used to measure the momentum of price movements, indicated that the metal may have been trading at unsustainable levels. Traders also remain focused on the Federal Reserve’s interest rate outlook, along with geopolitical concerns surrounding US President Donald Trump’s tariff policies, which have added to the uncertainty in the market.
Despite the Friday setback, gold has notched its seventh consecutive weekly gain, marking its longest winning streak since 2020. This ongoing rise has been bolstered by consistent central bank purchases, including from China, and increasing investments in gold-backed exchange-traded funds. However, traders are carefully monitoring US economic data, such as a significant drop in retail sales reported on Friday, which has led to renewed speculation that the Fed may lower interest rates by September. Lower borrowing costs typically support gold, which does not offer interest or dividends.
Though some investors have trimmed their bullish positions on gold, a report from the Commodity Futures Trading Commission showed that money managers reduced their bets on the metal to a four-week low. Analysts are also paying attention to developments in the global trade landscape, particularly regarding Trump’s tariff threats, which continue to raise concerns about a potential trade war and its impact on global economic growth.
Gold’s recent rally has been strongly supported by the dollar’s weakness, with the Bloomberg Dollar Spot Index hovering near a two-month low. A weaker dollar makes gold more affordable for holders of other currencies, which has helped bolster demand for the precious metal. On Monday, gold prices rose slightly as the dollar weakened following disappointing US economic data, with spot gold rising 0.6% to $2,899.73 per ounce.
In addition to geopolitical risks, gold is often seen as a hedge against rising inflation. As inflationary pressures remain a concern for investors, demand for gold may continue to be supported, even if safe-haven buying moderates due to a potential de-escalation in geopolitical tensions, such as the ongoing peace talks between Russia and Ukraine.
The rally in gold prices has been accompanied by gains in other precious metals, with silver, platinum, and palladium also showing positive momentum. Silver, in particular, rose to its highest level since October 31, 2024, continuing to benefit from the broader positive sentiment around precious metals.
With input from Bloomberg, Reuters, the Financial Times, and CNBC.
