Bludgeoned: Gold Plunges Most In Seven Years As Bottom Finally Falls Out For Bullion

It was destined to happen.

Those looking for a dip-buying opportunity in gold got it Tuesday, as the yellow metal fell more than 5.5%, in the worst single-session drop in seven years.

After rising virtually unimpeded to record highs, gold fell below $2,000 an ounce in a third straight day of losses, which lined up with three straight days of higher US real yields.

Note that Tuesday’s drop was even steeper than the declines seen in March, when gold was liquidated as the dollar surged and investors exited positions in the precious metal to meet margin calls in other assets.

Amusingly, the drop came just hours after Bloomberg featured commentary from CrossBorder Capital, where folks are busy arguing that gold’s recent rise wasn’t the product of deeply negative real rates, but rather shifts in global liquidity (as if emergency liquidity provision and plunging reals are somehow unrelated phenomena). Prices might hit $3,000, CrossBorder said.

Maybe they will. But not on Tuesday.

Instead, the rally collapsed under its own weight — the drop is good for an eye-popping chart.

Although the fundamental case for bullion obviously remains intact, the nascent uptick in US real yields and signs that investors may be prone to taking profits (see Friday’s $382 million outflow from the most popular gold ETF) suggest the record-shattering rally may have run out of steam for now.

Tuesday’s drop coincided with the biggest single-day rise in US 10-year yields in two months, which was itself helped along by a relatively robust read on PPI stateside.

If the move accelerates or lasts beyond a couple of sessions it could add to the pro-cyclical impetus seen in outperformance from small-caps, energy, and other laggards, which are in the process of trying to close a (wide) gap with mega-cap tech.

On Monday, I cautioned that although gold has plenty of excuses if it wants to keep climbing, the subtle uptick in real yields could serve as “kryptonite” in the near-term. Fast forward 24 hours and bullion was down the most since 2013.

Read more: Real Kryptonite Cameo Triggered Largest Gold ETF Outflow Since March Panic


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15 thoughts on “Bludgeoned: Gold Plunges Most In Seven Years As Bottom Finally Falls Out For Bullion

  1. Silver can hopefully go back to $23. It was so overbought. The RSI was, like, eye popping. The Silver chart started to look like APPL.

    These corrections in gold and silver are awesome.

    1. Haha. Ironic indeed since Silver is correcting before Apple, let precious metals consolidate, they should start a more measured move up once the nascent rotation fades again, or is it different this time?…

  2. Gold ETF outflows and end of stimulus timing seems like a coincidence and I don’t believe in coincidences. Not that it explains the larger move up, but can explain the late tot he party crazy frothiness at the end of the run. I would not be surprised to see a larger retracement.

  3. I’d love to show you the correlation between “real rates’ and gold but there isn’t any. It’s really hard to have a reflation narrative without inflation. Try curve steepening…

    1. Suggesting gold prices aren’t related to real rates is like saying cows don’t have anything to do with milk. It’s just wrong.

        1. I really don’t think you understand. For one thing, there’s no telling what windows you’re using there… 3-month rolling, 5-day rolling, 1-year rolling? What even is that? And what is “real rates” there? five-year US reals? 10-year US reals? Etc. etc. But more to the point, you’re aware that you are literally arguing a point that is irrefutable, right? It doesn’t seem like you understand this. Gold is, traditionally, an inverse real rates play. It’s attractiveness waxes and wanes based on the opportunity cost of holding it as proxied by real rates. Like, this isn’t a debate. It doesn’t seem like you understand this discussion very well, and trotting out a picture that you made with no definitions for the parameters certainly doesn’t do the trick when you’re trying to overturn decades of conventional wisdom about gold and reals. I’m not having this discussion any further with you because, again, I don’t believe that you understand it fully.

  4. I think you’re right in saying that the fundamental case for nice shiny yellow doorstops remains intact. Time will prove that to be right or wrong. Patience is a virtue.

  5. When relative valuations of all assets are as botched up by panic maneuvers that have been attempted in large part for political reasons… it becomes almost impossible to conjure a rational explanation of any of these happenings…. It is fun to theorize but truthfully reality has been compromised , hopefully not permanently ….. Case in point almost everything that transpires is a record event …..kind of like the hundred year flood or other unprecedented annual occurrences…

NEWSROOM crewneck & prints