Gold’s rally crashes in the biggest sell-off in over 10 years

On Wednesday, gold prices gained slightly after the precious metal’s impressive rally came to an abrupt halt on Tuesday, when prices dropped by more than 5%.

The fall in the price of gold, which is considered a safe-haven asset during times of uncertainty, came as investors took profits from a record-breaking rally and as Chinese and American officials are set to meet again for more trade talks.

Gold was last trading at $4,141.48 per troy ounce at 1:46 am ET on Wednesday, up less than 0.4%.

On Tuesday, spot gold fell by as much as 6.3% to $4,082.03 a troy ounce, after it reached a record-high of $4,381.21 on Monday. US gold futures dropped 5.7% at $4,087.70, the biggest percentage decrease since April 2013. Silver and platinum prices also fell sharply on Tuesday by 7% and 5% respectively.

Gold profit-taking after an overheated rally

According to analysts, the sell-off came after weeks of heavy buying that had pushed gold to overheated levels.

Optimism over easing trade tensions between Washington and Beijing and a rebound in the US dollar, persuaded investors to secure profits.

“I expect we’ll probably work out a very fair deal with President Xi of China,” Trump said on Monday. “I think we’re going to work out something that’s good.”

Analysts have also indicated that the end of the Diwali festival in India, the world’s second-largest gold consumer, reducing physical demand, may be another reason for the drop in gold prices.

Futures prices for gold are still almost 56% higher

Futures prices for gold are still nearly 56% higher year to date despite the losses on Tuesday.

Juan Carlos Artigas, regional CEO for the Americas and global head of research at the World Gold Council, said that while some investors regarded gold as expensive compared to global stock markets, it wasn’t. He added that prices didn’t move on their own and that value was always dependent on the wider market environment.

Fundamentals remain strong

Artigas told MarketWatch that it’s normal for financial markets to experience reductions after there are periods of rapid increases like gold has experienced.

He said that even though momentum had played a part in gold’s performance in the last few weeks, “we believe that its rally has also been driven by strong fundamentals, such as a structurally higher level of geoeconomic uncertainty, a steady increase in U.S. money supply, and a push towards lower interest rates.”

“Our analysis suggests that the gold investment market is not saturated and has room to grow,” he said.

The WGC says that gold remains under-owned. Its chart of the week, released on Monday, shows that gold prices remain well below the record highs. Also reached by the precious metal during the 1980s.

“We maintain that gold remains strategically underowned. There is still room for further upside, supported by strong fundamentals and elevated global liquidity,” the WGC said in its report.

WGC sees further upside for gold

Koos from Libertas Wealth Management also said that in comparison to the stock market, gold is still under-owned.

“In my experience, true tops rarely happen when people still don’t believe in the rally — and in the end, as the saying goes, “the trend is your friend, till the end, when it bends,” he said, with the reference to a “bend” referring to potential signs of weakness.

On Tuesday, Koos said that the drop in gold prices didn’t look like the big selloff everyone had been waiting for. Instead, it seemed more like an adjustment after a long, steady climb.

“The metal’s been overextended and long in the tooth for weeks. Some profit-taking or even a shakeout like this can help to clear out the tourists before a potential next leg higher,” said Koos.

So for now, gold’s latest move “feels more like a pit stop than the end of the trip,” he said.

Central banks provide a floor for prices

Prices have increased as much as 60%. Investors, from central banks to private funds, looked for protection from persistent inflation, widening fiscal deficits, and geopolitical risk. At the same time, supply remains constrained. That dynamic will likely support prices, with official-sector demand a key stabilising force for gold.

The strategists wrote that “Central banks still create a higher gold ‘floor’.” They added that since 2008, the institutions have steadily increased their gold holdings.

They added that over many centuries, gold has continued to offer currency-like characteristics. It serves as a medium of exchange, a unit of account, and a store of value.

Central banks and investors drive gold demand

Those qualities are especially attractive now. High US government debt is weighing on Treasurys, a key reserve asset for central banks.

Kowshik and Bindelli wrote: “Gold’s value will either remain unaffected by fiscal uncertainties or benefit from broad US dollar depreciation. We believe there is still room for central banks to further diversify their reserve holdings in gold.”

The analysts also claimed that nervousness about US financial sanctions, broader geopolitical risks, and unpredictable tariff policies under the Trump administration were additional drivers. These concerns further fueled central-bank demand for gold. These factors have boosted central-bank demand.

“Macroeconomic and geopolitical uncertainties are likely to remain conducive to further gold demand,” they wrote, raising their 12-month gold price target from $3,900 to $4,600 per ounce.

The bank’s assessment came as gold prices dropped. Investors secured profits after a fast rally in one of the year’s most crowded trades.

The huge run-up and sudden drop in gold led Bill Gross, the Wall Street billionaire known as the “Bond King,” to tell Business Insider that gold was “exhibiting characteristics of meme and momentum stocks.” The comment highlighted how speculative the market had become.

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