Gold drops below $2,000 as dollar holds gains and shares bounce

Gold slid more than 2pc on Tuesday as the dollar clung to recent gains and risk appetite was boosted by an expected US stimulus deal, prompting investors to take profits from bullion's explosive run to a record high.

Spot gold fell 1.9pc to $1,989.77 an ounce by 0952 GMT, retreating from last week's record high of $2,072.50. US gold futures declined 1.8pc to $2,003.10.

"The retreat was inevitable," said StoneX analyst Rhona O'Connell, adding that gold has been technically overbought for a while.

That gold did not advance further despite rising geopolitical tensions showed that a lot of supportive elements for gold have already been priced in, she said.

Adding to gold's headwinds, global equities hit multi-month highs on expectations that US Congress will agree a massive stimulus deal while looming trade talks raised hopes of an easing in tensions between the United States and China.

The dollar, too, clung to recent gains, making gold less attractive for investors holding other currencies.

Beyond technical triggers, the fundamental reason for gold's moves is that the dollar weakness of the past few weeks has paused, said Saxo Bank analyst Ole Hansen.

But most analysts still expect a positive trajectory for gold, with the metal having gained 31pc this year as unprecedented money printing by central banks and near-zero interest rates pushed investors into bullion as a hedge against possible currency debasement and inflation.

The recent "washout of speculative long positioning sets gold up for a more balanced rally going forward", said Jeffrey Halley, a senior market analyst at OANDA.

In other precious metals, silver fell 3.4pc to $28.17 an ounce, platinum was down 1.6pc at $970.96 and palladium declined 1.5pc to $2,186.73.