Gold prices were struggling to hold new highs Tuesday, one day after breaking above $1,600 an ounce, as concerns that the market had become overbought in recent weeks came to the forefront.
Gains across a broad range of assets, including equities and base metals, were diverting investors' attention from precious metals, which investors generally seek out as safety assets. Lack of significant developments on debt issues in the U.S. and Europe kept lingering anxieties largely in check.
Gold (-GC) for August delivery was adding 20 cents at $1,602.60 an ounce at the Comex division of the New York Mercantile Exchange. The yellow bullion has traded as high as $1,610.70 an ounce -- a new intraday record -- and $1,597.50 on the lower end. Meanwhile, the spot gold price was down by $3.50, according to Kitco's gold index.
Silver (-SI) was slipping 5 cents to $40.29 an ounce.
As global equity markets finished in the red Monday amid European contagion fears, a lack of progress on the deficit debate in the U.S. prompted investors to load up on the metals, sending gold to record levels and silver up more than 3%.
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"There's an expectation that you will see a bit of correction," said Michael Widmer, metals strategist at Bank of America Merrill Lynch. "Some of that comes from the technical side." A report by GoldCore explained that corrections often follow a round of record highs.
"Gold at $1,603 per ounce is only 2.5% above the recent record nominal price seen on April 29th at $1,563.70 per ounce. Thus, gold has had a two-month correction and consolidation prior to reaching the new nominal highs over $1,600 per ounce," said GoldCore.
Even as some long-term investors sold their gold positions to lock in profits at these new highs, many analysts believe that gold may still climb to fresh highs after a slight correction. GoldCore predicts that it is possible for gold to reach $1,700 an ounce.
Gold mining stocks were trading lower Tuesday, while broader equities surged on the strength of corporate earnings. Newmont Mining (NEM) was down 0.3% to $57.89, and Kinross Gold (KGC) was off 0.1% at $17.64. Yamana Gold (AUY) was sliding 1.7% to $13.05, and Agnico-Eagle (AEM) was falling 2.8% to $63.90.
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Meanwhile, silver is off the $50 highs it reached in April but has been rallying of late. "Most of the inflow has been speculative money," said Widmer of Bank of America Merrill Lynch. Widmer noted, however, the many investors believe that a pickup in industrial demand for silver from emerging markets will help prices in the medium term.
Among silver stocks, Silver Standard Resources (SSRI) was down 0.6% at $29.68, and Silver Wheaton (SLW) was falling 0.5% to $39.29.
