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(Kitco News) – Gold and silver prices are seeing a long-overdue correction, with silver’s steeper drop highlighting the liquidity gap between the two metals, but both are still under-owned in portfolios, and the structural drivers behind the rally remain intact, according to Ole Hansen, Head of Commodity Strategy at Saxo Bank.
“The risk of correction in gold and silver has been steadily rising in recent days, though exceptionally strong pre-Diwali demand helped support prices,” Hansen said on Wednesday. “However, a very technical extended rally combined with renewed ‘risk-on’ tone across stock markets, a firmer dollar and not least the start of Diwali—which typically signals softer physical demand from Asia—have made traders increasingly cautious, more focused on protecting gains than chasing new highs.”
He said that while the precise trigger for Monday’s dramatic selloff was unclear, gold’s three failed attempts to break above $4,380 “probably helped change the mindset” from greed to fear among precious metals traders.
“What followed was a classic rush towards an exit too narrow to cope with the sudden burst of selling from technical focused leveraged traders and recent buyers finding themselves underwater,” Hansen said.