Gold tumbles 5% in biggest sell-off since 2020

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Gold fell more than 5 percent on Tuesday, its biggest daily decline since 2020, as bullion’s record rally this year reversed at the end of the Diwali buying season.

After hitting a high of $4,381.52 an ounce on Monday, prices fell as much as 6.3 percent to $4,082.03 on Tuesday in what many saw as a long-awaited correction. It closed in the United States at $4,125.22.

“It’s getting a bit frothy here,” said Nicky Shiels, an analyst at MKS Pump. “The main catalyst is extremely overbought conditions – and the rally is ripening.”

This year’s historic rise has accelerated in recent weeks, with prices jumping 25 percent in just the past two months.

“The mere fact that we raised $1,000 in six weeks…suggests that prices are excessively high, and we are in the stratosphere,” Shiels added.

Silver and platinum also fell on Tuesday, by 7.4 percent and 5 percent, respectively.

Gold’s rise was influenced by investor concerns about rising government debt levels, the health of the US dollar, and the rush to 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 will position themselves in futures markets – due to the US government shutdown – were among the catalysts for Tuesday’s decline.

The gold buying season in India, the world’s second largest consumer, is also coming to an end with the end of Diwali and the beginning of the wedding season.

The biggest driver of 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 an increase in institutional investor interest in pouring money into gold-backed exchange-traded funds. Gold ETFs attracted record monthly inflows of $26 billion during September.

A retail buying frenzy – with queues appearing outside gold shops around the world from Japan to Australia – has poured more fuel into the rally in recent weeks.

“We are seeing a technical correction,” said Suki Cooper, an analyst at Standard Chartered. “We continue to believe that the longer-term picture is one of more upside risks for gold.”

Over the past two months, “the investor universe has expanded rapidly, but that appetite has been tested on its resilience,” she added.