Gold prices suffered their largest drop in more than a decade following a weeks-long surge that had pushed the precious metal to consecutive record highs. On Monday, bullion fell as much as 6.3%, tumbling from an all-time high of $4,381.52 an ounce reached just a day earlier.
Analysts attribute the sharp pullback to a mix of factors, including positive signals from US-China trade negotiations, a stronger US dollar, overbought technical conditions, and uncertainty surrounding investor positioning due to the ongoing government shutdown and the seasonal slowdown in Indian buying.
Haven demand for metals has cooled slightly as markets anticipate an upcoming meeting between US President Donald Trump and Chinese President Xi Jinping aimed at resolving trade tensions. “Gold has entered deeply overbought territory,” noted Ole Hansen, commodities strategist at Saxo Bank. “In the last couple of sessions, traders have been looking over their shoulders, concerned about a potential correction. But the underlying demand should keep any pullback contained.”
The strengthening US dollar has also weighed on gold. A stronger dollar makes precious metals more expensive for buyers outside the United States, reducing international demand. Combined with technical indicators signaling overextension, these factors contributed to the market’s sharp reversal.
Compounding the uncertainty is the US government shutdown, which has disrupted the release of critical weekly data from the Commodity Futures Trading Commission (CFTC). This report usually provides insights into how hedge funds and other large investors are positioned in gold and silver futures. Without the data, traders are navigating a more unpredictable environment. “The absence of positioning data comes at a delicate time,” Hansen said. “Speculative long positions may have built up, leaving both gold and silver more vulnerable to corrections.”
Volatility in precious metals has surged as traders scramble to hedge against potential losses or capitalize on price swings. Last week, more than 2 million options contracts tied to the world’s largest gold-backed ETF traded on Thursday and Friday, surpassing previous records. The intense activity highlights both heightened investor interest and nervousness about sustaining the rally.
Bloomberg strategists cautioned that while gold ETFs have not yet reached prior peaks in absolute holdings, history shows that momentum-driven rallies eventually slow and often reverse. “If upcoming data reveals a stronger US economy than expected, gold could see a sharper pullback,” they warned.
Silver also took a heavy hit, following a year of extraordinary gains. Benchmark silver prices have been supported by many of the same macro factors that fueled gold, including tight supply conditions and a historic squeeze in the London market. To relieve market pressure, traders have moved silver to London, while vaults linked to the Shanghai Futures Exchange recorded their largest single-day outflow since February. New York stockpiles have similarly declined.
On Monday, gold was trading at $4,129.37 an ounce as of 11:02 a.m. in New York, down 5.2% from recent highs. Silver fell 7.8% to $48.38 an ounce, reflecting a sharp correction after months of aggressive buying.
Despite the pullback, some analysts note that the market remains fundamentally strong. Investor interest in precious metals as a hedge against inflation, currency fluctuations, and geopolitical uncertainty has not disappeared. However, the recent volatility underscores the fragility of record-breaking rallies and the influence of global events, investor psychology, and technical factors on prices.
As markets await further clarity on trade talks and economic indicators, traders and investors alike are closely watching gold and silver for signs of stabilization. While the recent sell-off marks a dramatic pause in the metals’ meteoric rise, experts suggest that underlying demand could support a gradual recovery once the dust settles.