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The highly anticipated correction in gold and silver prices has begun. But don’t despair, says Commerzbank, projecting for the precious metals’ rally to resume after some profit-taking has taken place.
Gold has kicked off its downward trajectory after a failed attempt at a new record high on Monday.
“[The precious metal] made another attempt yesterday afternoon to reach the record high it posted at the end of last week, though it failed and only made it to $2,050. The price has been on a downward trajectory ever since,” wrote Commerzbank analyst Carsten Fritsch.
At the time of writing, December Comex gold futures were trading at $1,956.70, down 4.07% on the day.
It would not be surprising to see some significant profit-taking this week as prices saw extensive gains in the last few weeks — first breaching $1,920 an ounce, then rising above $2,000 an ounce, and even starting to eye $2,100 an ounce last week.
“The scale of the upswing over the past four weeks has been excessive. This was made clear by the extremely high RSI and the pronounced deviation from the 100-day moving average. Sentiment towards gold became positive in the extreme, with only a minority of participants sounding a note of caution,” said Fritsch.
Commerzbank is not ruling out seeing gold retreat to as low as $1,924 an ounce.
On top of everything else, the rally has been largely driven by investor interest, which might be enough to drive prices higher but not enough to sustain the uptrend.
“The price rise was almost solely attributable to robust investor demand, with all other demand components playing hardly any role. It is understandable that investors now appear to be taking profits,” Fritsch added. “This is also evident from the gold ETFs: they registered outflows on two consecutive days, which last happened in early June.”
However, a very significant correction like in mid-March is very unlikely, the analyst said.
Most importantly, this is not the end of the road for gold and silver prices, Fritsch noted, adding that the rally will resume after prices consolidate lower.
“The long-term outlook for gold and silver remains positive, however. Prices are likely to begin rising again as soon as the current correction has finished,” Fritsch wrote.
By Anna Golubova
For Kitco News
