Gold Suffers Largest Daily Drop in 12 Years, Analysts Dismiss Peak Fears: Market Still Poised for Growth

TradingKey - On Tuesday, October 21st, ET, spot gold plummeted 6.3%, nearing the $4,000 mark. According to FactSet data, New York gold futures also recorded their steepest decline since June 2013. This dramatic drop followed a record high of $4,381.52 set just the previous trading day.

The sharp decline has sparked market speculation: Is this a signal that gold prices have peaked, or merely a fluctuation before another rally?

Many analysts argue that this sell-off had been in the making for a while. StoneX market analyst Fawad Razaqzada noted that given the straight-line surge in gold prices previously, such a correction was inevitable.

Razaqzada highlighted that the easing of U.S.-China trade tensions this week, a rebound in the dollar, reduced safe-haven demand, and profit-taking by gold investors have all diminished the upward momentum for gold.

Goldman Sachs commodities expert Adam Gillard suggests that there was no clear trigger for this decline; the best explanation might be "positioning" issues. After nine consecutive weeks of gains, the market had amassed a substantial amount of long positions, becoming overly crowded.

Razaqzada added that it is too soon to declare the end of the gold bull market. Gold investors might seize this opportunity to buy on the dip, thereby controlling the sell-off. Currently, gold has slightly rebounded, trading at $4,138 per ounce at the time of writing, with New York gold futures at $4,150 per ounce.

Juan Carlos Artigas, Head of Global Research at the World Gold Council, provided further evidence that the gold bull market is not over. From the perspective of gold's valuation relative to global equities, it remains far below the historical highs of the 1980s. Artigas believes that gold is still undervalued and underheld in strategic allocations, with the gold investment market not yet saturated, suggesting potential for future gains supported by strong fundamentals and a high liquidity environment.

Citi forecasts that gold prices will remain volatile in the next two to three weeks. However, in the medium to long term, geopolitical uncertainty, risks of economic slowdown, and central bank buying demand will continue to support gold.

A Reuters survey indicates that the Federal Reserve's rate path next year remains unclear, with significant forecasting disagreements adding to policy risks. Additionally, Deutsche Bank warns that uncertainty over who will succeed Powell after his term ends will further magnify volatility. These factors are expected to benefit gold prices.