Why gold prices retreated after touching an intraday record above $2,150 an ounce

By Myra P. Saefong and Steve Goldstein

Gold futures fell by more than 2% on Monday, with analysts attributing the sharp turn lower to profit-taking following a climb to an intraday record high on Sunday evening.

Gold for February delivery (GC00) (GCG24) traded as high as $2,152.30 an ounce late Sunday, according to Dow Jones Market Data. That marked the highest intraday level on record.

Prices for the contract, however, ended Monday with a loss of $47.50, or 2.3%, at $2,042.20 on Comex after settling Friday at all-time high of $2,089.70.

Read: Gold futures soar to record close. Here's what's driving the rally.

Expectations the Fed will cut interest rates next year, as well as tension in the Middle East, have helped fuel the rise in the yellow metal.

"This comes mostly as a result of both a weaker dollar, the expectation that the dollar will continue to weaken and ongoing geopolitical pressures," said David Stritch, currency analyst at Caxton.

According to the CME FedWatch tool, markets are pricing in a nearly 52% chance of an interest-rate cut at the Fed meeting in March.

Gold has again demonstrated its effective role in diversifying portfolio returns and hedging against risks," analysts at UBS said in a recent note to clients.

Even so, the UBS analysts cautioned against "chasing" the gains in gold. "Given the rally over the past few weeks and the aggressive Fed rate cut expectations implied, we wouldn't chase prices higher in the near term."

On Monday, gold futures dropped back, marking their largest one-day daily percentage decline since February.

Record-high gold prices, combined with the "highest interest rates on cash since before the global financial crisis," led to heavy profit-taking among existing gold investors, said Adrian Ash, director of research at BullionVault.

Outside of Asian central banks and Wester hedge funds, gold is "far from a crowded trade right now," Ash said in market commentary.

Coin shops are actually "glutted" with customer selling and gold-backed exchange-traded funds continue to shrink," he said. He also said Monday that BullionVault users sold 2.5 times as much gold as they bought as a group over the last sevens days.

The profit-taking and high interest rates on cash are deterring new gold buyers for now, but gold's "underlying direction looks set to keep pointing higher in 2024 as "a slower economy sees central banks start cutting interest rates, while conflict and worsening geopolitical tensions continue to support bullion prices," said Ash.

-Myra P. Saefong -Steve Goldstein

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12-04-23 1440ET

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