Gold prices fall 6% in largest decline since 2013 as investors buy
As images of lines outside gold retailers proliferated on social media in recent weeks, professional traders in precious metals began to exhibit signs of apprehension. Gold is “an overcrowded trade that’s overextended by every technical metric,” noted Nicky Shiels. On Monday, as prices surged to unprecedented levels approaching $4,400 an ounce, Marc Loeffert cautioned that the metal was “getting even more overbought.” This week marked a significant turning point. Gold prices experienced a significant decline of 6.3 per cent on Tuesday, marking the largest drop since 2013, and maintained these losses through Friday, ultimately closing at $4,113.05 an ounce. In dollar terms, the $138.77 weekly decline is positioned among the most significant recorded.
Was it a pivotal moment in gold’s extended bull market, or merely a temporary decline? In Bangkok’s Chinatown, the nation’s gold trading hub, Sunisa Kodkasorn expressed her certainty. “Gold is the best investment,” she stated. “We made the decision to consolidate our resources and come today due to our awareness of the price decline.” She was not solitary. Across Singapore and the United States, dealers observed a surge in retail buyers acquiring gold in response to declining prices. Kodkasorn’s endeavor to capitalize on the dip was thwarted due to the unavailability of the gold bar within her budget. In Kyoto, nearly a thousand professional traders, brokers, and refiners gathered for Japan’s largest annual precious metal conference, which opens Sunday, indicating robust enthusiasm among market insiders. “Bull markets always need a healthy correction to weed out froth and ensure the cycle has duration,” Shiels remarked this week. The gold price reached a high of just over $4,381 on Monday. The notable aspect was that the decline was predominantly restricted to precious metals; other significant markets, including equities, Treasuries, and oil, exhibited minimal movement.
Analysts engaged in a discourse regarding the underlying causes: some attributed the phenomenon to profit-taking activities by hedge funds, while others highlighted the selling actions undertaken by Chinese banks. The decline, however, was largely expected following a remarkable 30 per cent surge in gold prices over a mere two-month period. On New York’s Comex futures market, there has been a notable increase in bearish put options compared to bullish call options, reaching some of the highest levels observed since the 2008 global financial crisis. A commodities-focused hedge fund manager expressed his frustration that, despite his long-standing bullish stance on gold, he had overlooked opportunities due to initiating his bets on a correction prematurely. Nonetheless, identifying a genuine gold bear continues to pose challenges. Most analysts of precious metals have maintained a bullish outlook over the past two years, although they have underestimated the pace of the rally. A survey revealed that nearly all analysts anticipated an increase in prices; however, only a small number predicted that gold would trade above $3,300 by 2025.
Gregory Shearer observed that the dip-buying activities by central banks and physical buyers are expected to mitigate the severity of any potential reversals. History, however, provides a cautionary tale: when gold reached $1,921 in September 2011, the majority of analysts at that year’s LBMA conference expressed bullish sentiments, yet it required almost a decade to return to that peak. The recent increase has been propelled by a series of central bank acquisitions in response to sanctions imposed on the Russian central bank in 2022, concerns regarding unsustainable government debt, and, more recently, a spike in retail demand. In Singapore, Pete Walden noted that Tuesday marked the busiest day on record, with customers lining up prior to the opening. In the United States, Stefan Gleason noted that demand from bargain hunters surpassed supply. In Tokyo, Hang Viet stood in line in Ginza, perceiving the decline as a chance to invest. “I believe gold prices will keep rising in the long run,” he stated. Despite the recent correction, the message is unequivocal: gold continues to be a coveted hedge, drawing interest from both institutional and retail investors eager to capitalize on the dip, thereby sustaining the current bull market.
