Gold prices have collapsed in a two-day avalanche, tumbling as fears over market volatility ease - with the precious metal seemingly entering a correction phrase.
The safe haven asset has slipped from $1,993 per ounce at the start of the week to $1,957 per ounce in Tuesday afternoon trading on the spot market, a near two percent drop.
This is in sharp contrast with last month's mega rally when prices broke the $2,000 per ounce barrier, powered by fears over economic instability as conflict escalated between Israel and Hamas.
While fears remain over the conflict spilling over into a regional war, prices have been pared back with the US Federal Reserve sending signals to markets it is done with raising rates.
The Fed has held interest rates at 5.25 percent to 5.5 percent, following a hawkish approach to taming inflation.
Ole Hansen, head of commodity strategy at Saxo Bank, argued that Fed chief Jerome Powell's response surprised market watchers, who had pinpointed gold as a key flight to safety asset.
"His comments helped wrongfoot traders who during the reporting week had been focusing on markets plagued by geopolitical concerns, sharply rising Treasury yields and a strong dollar driving the risk of economic weakness. Three weeks of near record gold accumulation has left the metal exposed to a correction or best a period of consolidation," Hansen said.
This outlook was shared by Craig Erlam, senior market analyst at Oanda, who believed $2,000 per ounce represented a psychological barrier for investors, with the metal struggling to sustain itself at that milestone this year.
He said: "Gold has broken lower today, appearing to enter into a correction phase after failing to significantly break above $2,000 on a number of occasions. Perhaps we're seeing an unwind of some of the geopolitical risk in the markets or just a technical correction in the rally over the last month but the last couple of sessions haven't been great."
Looking ahead, Erlam wanted to see how investors responded if the metal dropped to around $1,940 as this "this roughly coincides with prior resistance."
By CityAM
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