By Barani Krishnan
Investing.com - Gold fell its most in a day for 2019 as longs in the yellow metal discovered on Thursday how quickly the U.S.-China rhetoric can swing the other way.
Spot gold, reflective of trades in bullion, traded at $1,518.52 per ounce by 2:45 PM ET (18:45 GMT), down $34.06, or 2.2%, on the day after news that the U.S. and China have agreed to more trade talks in October. That was its highest percentage drop for the year.
Bullion rose in the previous session to $1,557.09, its highest level since April 2013.
Gold futures for December delivery settled down $34.90, or 2.2%, at $1,525.50 per ounce on the Comex division of the New York Mercantile Exchange. In Wednesday’s session, December gold hit a more-than-six-year high of $1,566.15.
The last time gold futures saw a drop like that was a 2.4% tumble in January.
For weeks now, investors have piled into gold, egged on by central-bank buying of bullion amid the global downtrend for interest rates. Increasing hostilities between the U.S. and China driven by their tariff war also led to widespread risk aversion that hammered U.S. bond yields, prompting greater hedges in safe havens.
On Thursday, however, the trade war rhetoric suddenly turned, with both sides appearing to make at least temporary peace ahead of talks set for October.
“The recent round of risk-on sentiment also has the potential to further weigh on precious metals, as gold prices struggle to hold onto the upward trend,” TD Securities said in a note. “Should the positive trade headlines cluster, we could well see the precious metals complex consolidate lower, particularly given that other event risks have somewhat simmered, ahead of the various central bank meetings in September.”
There’s still plenty of scope for gold to rally further on the potential for more dismal global data. It is so far up about 20% on the year, fed by fears over the trade war and the potential for the world to plunge into recession.
Gold needs to rise about 25% more in order to rewrite record highs above $1,900 set in 2011, a probability some are betting on.
That goal could be more easily achieved if the Federal Reserve cuts its key federal funds rate by an additional 25 basis points at its Sept. 17-18 policy decision meeting. The Fed cut the rate by a similar level in August. Lower interest rates tend to support gold by reducing the yield on bonds, which compete for the capital of risk-averse investors.
Investing.com's Fed Rate Monitor Tool sees a 95% chance the rate will drop to 1.75% to 2%.
But TD Securities said it wasn’t sure of the Fed delivering on another rate cut.
“With the S&P sitting only a few percentage points off its highs, financial conditions have not tightened materially, which could embolden the Fed to ultimately disappoint the market's rate cut expectations,” it said.