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.
Russell Shor, senior market analyst at Tradu.com, said: “Gold is likely to remain volatile in the near term after its steepest one-day drop in over a decade. Spot prices fell below $4,070 an ounce as traders took profits following months of record gains fuelled by Fed rate-cut bets, dollar weakness, and central bank buying.
“The sell-off appears to be largely technical, with profit-taking following an extended period of overbought conditions since September. Despite the pullback, bullion remains up roughly 55% this year, and the longer-term primary uptrend remains firmly intact.”
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.
Read more: FTSE 100 LIVE: London stocks jump as steady UK inflation spurs interest rate cut bets
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.
“Despite the overall bearish sentiment driven by an oil supply glut and weak demand, the risk of supply disruption in hotspots like Russia, Venezuela, Colombia and the Middle East remains in place and prevents oil prices staying below the $60 handle,” said Mukesh Sahdev, founder and CEO of energy market consultancy XAnalysts.
Read more: UK inflation holds unexpectedly at 3.8% in September
Venezuela, another key oil producer, remains a focus of geopolitical tension. On Tuesday, a group of independent United Nations experts condemned recent US military actions in international waters, calling them a dangerous escalation and describing them as “extrajudicial executions”.
Elsewhere, attention turned to trade. US and Chinese officials are set to meet this week in Malaysia, reviving hopes that progress can be made in resolving long-running economic disputes. On Monday, Trump expressed optimism, saying he expected to reach a fair trade deal with Chinese president Xi Jinping during a planned meeting in South Korea next week.
“Trump’s trade negotiation comments are likely providing some support to the market. Further support is likely coming from the cancellation of the Trump–Putin summit,” ING commodities strategists said.
Markets also digested data showing a drop in US crude, gasoline, and distillate inventories last week, according to figures from the American Petroleum Institute released on Tuesday.
Sterling dropped by 0.3% to $1.3331 after this morning’s inflation data saw the rate of price increases remain flat for a third month in a row.
The pound dropped to a two-week low against the dollar, falling from $1.34 on Tuesday.
It comes as traders ramped up their bets that the Bank of England could still cut interest rates this year.
The US dollar index (DX-Y.NYB), which tracks the greenback against a basket of six major currencies, was steady at 98.95.
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In other currency news, the pound edged lower against the euro, down 0.3% to trade at €1.1485.
In equities, the FTSE 100 (^FTSE) was up 0.6% on Wednesday morning, trading at 9,486 points. For more details on market movements, check our live coverage here.
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