Gold’s sharp two-day correction overdue and healthy, analysts say (NYSEARCA:GLD)

Gold futures extended their losses Tuesday in the largest two-day percentage decline since February last year, down nearly 3%, as diminishing fears about an escalation of tensions in the Middle East drained the metal’s safe-haven appeal.

Gold’s correction is long overdue and healthy, and likely will challenge traders’ belief that further gains are possible, Saxo Bank head of commodity strategy Ole Hansen says, according to Dow Jones.

The correction will help determine the real level of gold’s underlying demand, and the extent of it will depend on the scale of hedge funds selling, after amassing a major long position during the run higher, Hansen says.

A “healthy technical pullback was overdue,” Exinity chief market analyst Han Tan told MarketWatch, and gold’s decline still has “more room to run into sub-$2,300 waters, as markets unwind geopolitical risk premiums.”

Given the recent price action, the risk of gold prices correcting down remains elevated in the near term, but geopolitics remain a bullish wildcard, J.P. Morgan analysts said, forecasting gold prices ending 2024 averaging $2,500/oz in Q4 with further upside next year.

Front-month Comex gold (XAUUSD:CUR) for April delivery ended -0.2% to $2,327.70/oz.

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Silver also has corrected sharply, with LBMA silver prices -1.8% to $27.74/oz in sympathy with gold; silver had rallied faster than gold in recent weeks, up 13% in the past month vs. gold’s 6.2% gain, but is now falling more quickly.

Hansen tells Dow Jones that silver’s slide has been amplified by the recent failure to break above $30/oz, the metal’s 2020 and 2021 high.