Gold Prices on a Rollercoaster: Attempts to Recover After Sharp Sell-Off

Gold markets have entered a turbulent phase, attempting to rebound after suffering one of their steepest declines in a decade.

Analysts maintain that the long-term outlook for the precious metal remains positive—driven by ongoing central bank purchases and persistent global uncertainty—but warn that investors should remain cautious in the near term, as prices could continue to fluctuate before finding stability.

October 21 has already been dubbed “Black Tuesday” for gold, which recorded its largest single-day drop in ten years, plunging more than 6% from recent highs. Silver followed suit, marking its sharpest daily fall since February 2021. By Thursday, gold had extended its losses for a third consecutive day, sliding toward $4,000 an ounce as investors feared the market had overheated following its rapid surge to record levels. The metal later managed to recover nearly 1%, rising back above $4,100 an ounce—but questions remain over whether this rebound will endure or if the decline will resume.

The sharp sell-off was largely attributed to a technical correction amplified by significant outflows from exchange-traded funds (ETFs). According to Bloomberg data, Wednesday’s daily outflow from gold-backed ETFs was the highest in five months, signaling that investors were locking in profits after the recent rally.

At the same time, traders are closely monitoring developments in U.S.–China trade relations, which could ease geopolitical tensions that have helped fuel demand for safe-haven assets like gold. Over the past two sessions, the metal has lost nearly 6%.

“After an excessive rally, gold is behaving like a rubber band that has been overstretched and is now coming back with force,” said Hebe Chen, an analyst at brokerage firm Vantage Global Prime. “Prices holding steady above $4,000 suggest a technical adjustment rather than a fundamental change, with safe-haven demand and the debasement trade remaining largely intact.”

A key driver behind gold’s surge since mid-August has been what some analysts refer to as “bargaining for dearth”—a move by investors to avoid government debt and fiat currencies as protection against ballooning budget deficits. Despite the recent sell-off, gold prices remain up about 55% so far this year, buoyed in part by expectations that the U.S. Federal Reserve will implement at least one 0.25% rate cut before year-end.

“We believe the decline was largely technical,” wrote UBS analysts led by Wayne Gordon. “With price momentum slowing and options volatility increasing, more speculative investors decided to take their profits back.”

UBS added that the main factors propelling gold to record highs this year are still intact.

These include persistent inflation, the impact of tariffs, questions surrounding the Federal Reserve’s independence, and political instability in the U.S. “Therefore, we believe it is premature to turn negative on gold, despite the pause in the rally,” Gordon stated.

Meanwhile, investors are increasingly turning to the options market to hedge against potential price swings. Volatility for the coming month remains elevated after reaching its highest point since 2022 earlier in the week.

Market participants are also eyeing potential progress in trade discussions between Washington and Beijing following renewed tensions between the two economic superpowers. U.S. President Donald Trump said on Tuesday that an upcoming meeting with Chinese President Xi Jinping would result in a “good deal” on trade, though he admitted that the talks “may not happen.”

“Markets are taking a balanced stance towards trade and geopolitical turmoil—cautious, but based on a realistically optimistic spirit,” Chen observed.

The contagion effect spreads

Gold’s decline has rippled across the broader precious metals complex. Silver slipped 0.4% to $48.31 an ounce, extending losses after hitting record highs earlier this month. Platinum fell 1.4% to $1,598.65 an ounce, while palladium mirrored the drop, sliding 1.4% to $1,438.47 an ounce.

Analysts note that silver’s sharper downturn reflects its dual nature as both an industrial and investment metal. Slower global demand combined with profit-taking after recent highs has dampened investor sentiment.

Experts caution that gold’s short-term trajectory may remain choppy as markets digest upcoming U.S. inflation data and central bank announcements. Should inflation cool and the Federal Reserve adopt a more dovish tone on interest rates, the metal could regain support.

For now, analysts continue to see a favorable long-term picture. As one consensus view summarizes, ongoing central bank buying and lingering global uncertainty “should underpin gold’s resilience,” though investors are advised to exercise restraint in the immediate term as “prices may fluctuate before stabilizing.” 

By fLEXI tEAM