Gold and silver prices have experienced their steepest sell-off in the past twelve years, sparking concerns that their dramatic surge in recent weeks has made them overvalued.

Spot gold is trading around $4,140 per ounce after falling 6.3% in the previous session, marking the largest intraday decline in more than twelve years. Silver registered a slight increase after an 8.7% drop on Tuesday. The sharp drop followed technical signals indicating that the rapid price rally in both metals had pushed them into strongly overbought territory.

Many experts emphasize that technical selling was the primary cause. Prices have been in the overbought zone since early September, making a sell-off virtually inevitable.

The pullback abruptly halted a steep rally that began in mid-August. Key drivers of the recent growth included so-called debasement trading, where investors avoid sovereign bonds and currencies to hedge against uncontrolled budget deficits, as well as bets that the Federal Reserve would implement at least one significant rate cut before the end of the year. Despite the retreat, gold remains up nearly 60% for the year.

Aggressive actions by President Donald Trump in his attempts to reform global trade, along with rising geopolitical uncertainty, have also fueled the surge in precious metal prices this year. Central banks seeking to diversify and shift away from the U.S. dollar continued buying, while retail investors redirected funds into exchange-traded funds (ETFs), aiming to capitalize on the rally.

Following the sharp sell-off, Citigroup Inc. downgraded its gold recommendation from "overweight," citing concerns over positioning in an overbought market. The bank expects prices to consolidate around $4,000 per ounce in the coming weeks.

The sell-off also occurred as investors assessed potential progress in U.S.-China trade talks following a recent rise in tensions that had previously increased demand for safe-haven assets. On Tuesday, Trump predicted that an upcoming meeting with Chinese President Xi Jinping would result in a favorable trade deal, although he acknowledged that talks might not happen at all.

The U.S. government shutdown also deprived traders of one of their most valuable tools: the weekly report from the Commodity Futures Trading Commission, which reveals how hedge funds and other asset managers are positioned in U.S. gold and silver futures markets. Without this data, speculators are more likely to form unusually large positions in either direction.

Technical Picture

Buyers need to reclaim the nearest resistance at $4,186 to aim for $4,249, a level above which a breakout would be difficult to sustain. The furthest target lies in the $4,304 area.

Should gold decline, bears will attempt to take control at the $4,124 level. A successful breakdown below this range could deal a significant blow to bullish positions and push gold toward a low of $4,062, with potential to reach $4,008.