After a long rally, gold and silver prices see sharpest decline in years

Gold and silver witnessed their sharpest one-day sell-off in years, as investors locked in profits amid growing concern that the recent surge in precious metals had pushed valuations too high. Spot gold prices tumbled as much as 6.3 per cent, marking the biggest fall in over twelve years, while spot silver dropped 8.7 per cent after technical indicators suggested earlier gains were overextended.

“A drop of more than 5 per cent is rare,” said Alexander Stahel, a resources investor based in Switzerland. “In theory, it would be once in hundreds of thousands of trading days.”

The fall abruptly ended a historic rally that had propelled both metals to record highs in the past week. Gold had risen on speculation that the US Federal Reserve would deliver an outsized rate cut by year-end, coupled with investor concern over ballooning budget deficits, which spurred a move away from sovereign debt and major currencies.

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Frank Monkam, head of macro trading at Buffalo Bayou Commodities, attributed the pullback to strong technical factors. He noted key support between $4,000 and $4,050, predicting prices would rebound once the market corrected its overbought positions. “A positioning cleanup should set us up for the next leg higher, led by ETFs and emerging markets central banks,” he said.

Helen Amos, commodity analyst at BMO Capital Markets, explained that the rally since September had been largely driven by trend followers. “Such trading naturally has the potential to go the other way as soon as we get a couple of days of prices coming off,” she observed.

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By 4.59 pm in New York, gold had fallen 5.3 per cent to $4,125.22 an ounce, while silver slid 7.1 per cent to $48.71. The rise of the US dollar has further weighed on the appeal of precious metals.

The temporary shutdown of India—the world’s second-largest gold buyer—for the Diwali festival also reduced liquidity in the global market. In contrast, silver, which has significant industrial uses beyond its role as a store of value, had seen even more dramatic gains in recent weeks.

A historic squeeze in the London silver market last week pushed prices beyond the record set in 1980 during the infamous Hunt brothers’ attempt to corner the market. Benchmark prices exceeded New York futures, prompting shipments of physical metal to London to ease shortages.

On Tuesday, vaults linked to the Shanghai Futures Exchange recorded the largest one-day outflow of silver since February, while New York stockpiles also declined.

Market drivers and investor reaction

Gold’s surge to new highs last week was fuelled partly by concerns over US credit quality, which triggered a massive US$8 billion inflow into physically backed gold exchange-traded funds—the biggest weekly inflow since data collection began in 2018, according to the World Gold Council.

“When you have got that much money quickly coming into the space, it’s only natural to expect some of that money to leave as well when people have made a quick return,” Amos added.

The ongoing US government shutdown has compounded the uncertainty, leaving commodity traders without the weekly report from the Commodity Futures Trading Commission (CFTC) that details hedge fund and money manager positions. Ole Hansen, commodities strategist at Saxo Bank, warned that “the absence of positioning data comes at a delicate time,” as it may enco…