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Gold prices tumbled 5 per cent on Tuesday, on course for their biggest daily drop for more than five years, as this year’s record-breaking bullion rally went abruptly into reverse at the end of the Diwali gold-buying season.
After reaching a high of $4,381 per troy ounce on Monday, prices sank 5.2 per cent to $4,131 on Tuesday in what many saw as a long-overdue correction.
“It’s getting a little bit frothy up here,” said Nicky Shiels, analyst at MKS Pamp. “The main catalyst is extremely overbought conditions — the rally is maturing.”
The historic rally this year has accelerated in recent weeks, with prices jumping 25 per cent in the past two months alone.
“The mere fact that we have rallied $1,000 in six weeks . . . it is indicative that prices are overly elevated, we are in the stratosphere,” Shiels added.
Silver and platinum also plunged on Tuesday, falling 8 per cent and 6 per cent respectively.
Gold’s surge has been fuelled by investor concerns about growing government debt levels, the health of the US dollar, and a dash for safe havens sparked by Donald Trump’s trade war.
Analysts said an apparent thaw in US-China trade tensions, a recent rebound in the US dollar and the absence of key data on how investors are positioned in futures markets — due to the US government shutdown — were among the catalysts for Tuesday’s fall, the largest since August 2020.
The gold-buying season in India, the world’s second-biggest gold consumer, is also drawing to a close with the end of Diwali and the beginning of wedding season.
The biggest driver for gold’s rise this year has been demand from central banks, which are buying the metal to diversify their holdings away from the dollar.
In recent months there has been a surge of interest from institutional investors pouring money into gold-backed exchange traded funds. Gold ETFs attracted record monthly inflows of $26bn during September.
A frenzy of retail buying — with queues developing outside gold shops across the world from Japan to Australia — poured further fuel on the rally in recent weeks.
“We are seeing a technical correction,” said Suki Cooper, analyst at Standard Chartered. “We still think the longer-term picture is one of more upside risk for gold.”
Over the past two months, “the universe of investors has expanded rapidly, but that appetite has been tested as to how resilient it is”, she added.
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