Gold prices dropped back from a 10-month high on Thursday, suffering from their largest one-day decline since August.
Analysts attributed the steep loss to minutes from the Fed’s January meeting released a day earlier, which sounded less dovish than investors had expected, as well as a stronger dollar and rising bond yields. Prices for the metal also sank on the back of technical trading pressure.
“Gold was due for a correction as the current rally was getting very extended,” Michael Armbruster, managing partner at Altavest, told MarketWatch. “In our opinion, the pullback we’re seeing in gold is technical in nature.”
Gold’s daily relative strength index hit 77.22 Wednesday on the daily chart for the front-month futures contract, its highest level in about a year, he said. The RSI can be used as a measure of overbought or oversold market conditions.
Gold for April delivery on Comex GCJ9, -1.45% fell $20.10, or 1.5%, to settle at $1,327.80 an ounce. That was the largest one-day dollar and percentage loss for a most-active contract since Aug. 13, FactSet data show. March silver SIH9, -2.33% also dropped 37.6 cents, or 2.3%, to $15.801 an ounce—the largest loss for futures prices since September.
Gold on Wednesday posted its highest close since April 19 but retreated after the bell in electronic trading after the Fed minutes said several officials saw the need for more rate increases if the economy evolved as expected, while others argued rate increases would be necessary only if inflation exceeded forecasts.
Trey Reik, senior portfolio manager at Sprott Asset Management, said that the minutes were the key driver of gold’s downbeat action on the day.
“Certain people interpreted those minutes as being more hawkish than had been expected,” he said.
“For example, some [Fed] participants said they might envision another rate hike and that had pretty much been factored away,” but was revived with the minutes on Wednesday, said Reik.
“A firming dollar and sharply rising bond yields” were also reasons why gold saw such a big drop Thursday, said Tyler Richey, co-editor of the Sevens Report.
“Gold rallied too far too fast on the dovish shift in the Fed’s tone earlier this year and became overbought into the mid $1,300s ... and without the support of a weaker dollar or depressed yields, the gold bid disappeared today,” he said.
On Thursday, the ICE U.S. Dollar Index DXY, +0.12% edged up by 0.2%, while the yield on the 10-year Treasury note TMUBMUSD10Y, +1.76% climbed.
Investors also continue to keep an eye on U.S.-China trade talks following reports that negotiators have begun to outline a deal that could help resolve the long-running spat.
Meanwhile, economic data were mixed on Thursday, with jobless claims, a rough measure of layoffs, fell by 23,000 to a seasonally adjusted 216,000 in the seven days ended Feb. 16, the government said, while overall orders for durable goods — products intended to last at least three years — rose a seasonally adjusted 1.2% in December from the prior month, the Commerce Department said.
Perhaps drawing the most attention was apparent weakness in manufacturing, with a reading of Philadelphia-area performance, known as the Philly Fed index, in February dropping sharply in to negative territory.
Meanwhile, March palladium PAH9, -1.36% fell $17, or 1.2%, to $1,445.10 an ounce after settling Wednesday at its highest on record. Prices have now seen just three down days so far this month.
“With the palladium market posting fantastic gains in the prior two trading sessions, a reversal in gold prices and little news on the U.S./Chinese trade front leaking out of the meetings, a corrective action is not surprising,” analysts at Zaner Precious Metals wrote in a daily note.
Read: Here’s what could shoot down palladium’s record run
In other metals trade, March copper HGH9, -0.75% lost 2,3 cents, or 0.8%, to $2.897 a pound and April platinum PLJ9, -0.83% declined $7.90, or 1%, to $826.30 an ounce.
Gold-backed exchange-traded fund SPDR Gold Shares GLD, -0.97% shed 1.1%.