US gold futures fell by 1.0% to $2,445.10 per ounce in New York, yet remained above the $2,400 mark throughout the trading session.
Despite the decline on Monday, gold prices have increased by approximately 18% year-to-date. The metal reached an all-time high in July, propelled by purchases from central banks and demand from Asian consumers. It further surpassed the $2,500 barrier for the first time last week.
The strong demand for gold has been supported by expectations of interest rate cuts from the US Federal Reserve, alongside rising geopolitical tensions in the Middle East, making gold a sought-after safe haven during uncertain times.
However, the positive trends were undermined on Monday by a selloff in global stock markets prompted by concerns over a potential US recession, following disappointing economic data released last week.
Adrian Ash, director of research at BullionVault, noted in a Bloomberg report that margin calls before the New York market opening forced traders to liquidate profitable gold positions to mitigate losses from falling stocks.
Typically, in a stock market downturn, gold prices can drop alongside equities, but they tend to decline less sharply and stabilize quicker, Ash explained.
Nevertheless, analysts are optimistic that gold could recover, given ongoing economic and political uncertainties, as well as anticipated interest rate cuts, which are favorable for non-yielding bullion.
Rhona O’Connell, an analyst at StoneX Financial, pointed out that during times of significant equity market weakness, investors often sell off portions of their gold holdings to improve liquidity in anticipation of margin calls, but they usually repurchase them once market conditions stabilize.