Gold and silver steadied after their steepest selloff in years, as investors locked in profits on concern the recent surges in the precious metals had left them overvalued.

Spot gold traded near $4,125 an ounce after tumbling as much as 6.3% on Tuesday — the biggest intraday decline in more than a dozen years — while spot silver slumped as much as 8.7%. Technical indicators had shown a scorching rally in both precious metals was likely overstretched. The pullback brought an abrupt halt to a scorching months-long advance that had seen both precious metals post record highs in recent trading days. Gold had soared in large part because of bets on the Federal Reserve making at least one outsized rate cut by year-end, as well as the so-called debasement trade, in which some investors have pulled away from sovereign debt and currencies to protect themselves from runaway budget deficits.

Citigroup Inc. cut its overweight gold recommendation after Tuesday's slump, citing concerns about stretched positioning. The bank's Commodities Research team expects further consolidation around $4,000 an ounce in the coming weeks, strategists including Charlie Massy-Collier said in a note.

"Eventually the older part of the gold bull story — continued central bank demand to diversify away from the US dollar — may come back, but at current levels there is no rush to position for that," they wrote, adding that prices had "run ahead of the ‘debasement' story."

For Nicky Shiels, head of metals strategy at MKS Pamp SA, current prices in both gold and silver are approaching "good entry levels," she said in a Tuesday note.

A rangebound period in the shorter-term of between $4,000-4,500 an ounce in gold — and $45-50 an ounce in silver — should allow "markets to breath, liquidity and risk appetite to return, and fair-value fundamental floors to be secured," she wrote.

The corrections also came as investors weighed potential progress in talks between the US and China, following a recent resurgence in tensions that had bolstered demand for haven assets. President Donald Trump on Tuesday predicted an upcoming meeting with Xi Jinping would yield a "good deal" on trade — while also conceding that the highly anticipated talks may not happen.

Elsewhere, the shutdown of India — the second-biggest gold buyer — for the Diwali festival has also drained the market of significant liquidity. In the silver market — which unlike gold is not just a store of wealth, but a metal with industrial utility — the gains in recent weeks have if anything been even more dramatic.

Read More: Sold Out in India, Panic in London: How the Silver Market Broke

A historic squeeze in the London silver market last week drove prices beyond the record set in 1980, during a notorious attempt by the Hunt brothers to corner the market. Benchmark prices traded above New York futures, prompting traders to ship metal to the UK capital to ease tightness. On Tuesday, silver in vaults linked to the Shanghai Futures Exchange saw the biggest one-day outflow of silver since February, while New York stockpiles have also fallen.

Spot gold was little changed at $4,124.75 an ounce at 7:10 a.m. in Singapore, after closing the previous session 5.3% lower. Silver slipped 0.2%. Platinum and palladium were little changed, after posting losses of more than 5% apiece on Tuesday.--With assistance from Yvonne Yue Li.

Source: Bloomberg