Gold, silver hold losses as stocks take a breather: Markets wrap

Gold held steady and silver slipped in early Asian trading after both metals plunged from record highs Tuesday, while a rally in US stocks showed signs of fatigue.

Gold steadied after dropping as much as 6.3% on Tuesday, its biggest intraday decline in more than a dozen years. Silver weakened further after falling 7.1% in the prior session. Treasuries advanced Tuesday while a dollar gauge was flat Wednesday.

The drop in gold and silver underscored a wave of profit-taking after their rapid gains this year, amid growing concern the rallies have entered bubble territory. The moves contrasted with relative calm across equities and bonds, where investors remained focused on broadly solid US earnings.

Australian shares, meanwhile, fell alongside equity index futures for Hong Kong, while those for Tokyo were higher. US share futures were broadly stable after the S&P 500 closed little changed Tuesday.

Despite recent de-risking amid concerns over trade and credit, stock exposure among global macro hedge funds and long-only strategies remains at the highest in over a year, according to Barclays Plc.

“Our near-term technical outlook is for equities to consolidate/pull back over the next few weeks,” said Craig Johnson at Piper Sandler. “We view pullbacks as healthy and necessary.”

While the US government shutdown has caused an economic data vacuum, drawdowns in equities have been short-lived as investors see them as opportunities to add risk to their portfolios. The closure has also left commodity traders without one of their most valuable tools: a weekly report from the Commodity Futures Trading Commission that indicates how hedge funds and other money managers are positioned in US gold and silver futures. 

“We assume such positioning had built to substantial levels and ultimately triggered the selloff,” ANZ Group Holdings Ltd. analysts Brian Martin and Daniel Hynes said in a note. “Despite this pullback, we still see long-term drivers in place and providing support to prices.”

In other markets,Treasuries gained, sending the 30-year yield to the lowest since early April, as the US government shutdown is on the cusp of becoming the second-longest on record. Bitcoin bounced. 

Oil rose a second day in early trading after President Donald Trump stressed that India would wind down its purchases of oil from Russia, saying for the second straight week that he spoke directly about the matter with Prime Minister Narendra Modi, and after an industry report showed a decline in US inventories.

A confluence of factors dragged down precious metals, including positive trade talks between China and the US, a stronger dollar, overstretched technicals, and uncertainty on investor positioning due to the US government shutdown and the end of a seasonal buying spree in India.

Gold’s rally in recent months has been nothing short of extraordinary, fueled by falling yields, persistent central bank buying, and expectations of further monetary easing, according to Fawad Razaqzada at City Index and Forex.com.

“Markets rarely move in straight lines,” he said. “But it is far too early to suggest that the broader bull trend has ended. While corrections are natural, it is worth pointing out that many investors missed out on the big rally. Soon, they may step in to buy the dip, which should keep the selloff contained.”

Some of the main moves in markets:

This story was produced with the assistance of Bloomberg Automation.