Gold’s recent price correction 

Gold rose over 59% this year as central banks kept driving the debasement trade, reinforcing its appeal as the ultimate safe haven in an uncertain yet supportive environment.

However, prices saw a sharp selloff starting on Tuesday, after an exceptionally strong two-month rally left the metal overheated. A pullback was overdue and can be considered as a healthy correction for the asset.

The metal now needs to “cool down” before resuming a more sustainable uptrend. Obviously, confidence has been shaken by this sharp correction, particularly among market participants (like retail investors and hedge funds) who joined late in the rally, often building their exposure through heavy ETFs buying. Sentiment will take time to recover. This contrasts with long-term investors and central banks, which have been steadily accumulating gold for years as part of their long-term de-dollarization strategy.

Noticeably, the fact that equities, the USD, and yields stayed stable during this gold price correction suggests that the drop was mainly a technical correction specific to the asset and not a sign of a broad market stress.

Nevertheless, gold’s correction may last as long as the speculative excess that has been recently built up in the market is not fully flushed out. Some of this flow could eventually be redirected toward base metals such as copper and aluminium, which are showing signs of technical strength and stand out as key beneficiaries of the energy transition. 

Despite the possibility of further volatility, gold remains a strategic safe haven, not just a short-term trade. Persistent geopolitical risks, inflation upside risks, recent concerns on potential weak links in the US financial system and the prospect of a more accommodative Fed’s monetary policy ahead all continue to provide medium to long term support for gold.

Source: Bloomberg


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