Gold's 5pct slide seen as rare in a typically stable market
KUALA LUMPUR: In a market where daily price swings rarely exceed one per cent, gold's plunge this week was nothing short of extraordinary – a drop so steep that analysts are calling it a rare event not seen in years.
The precious metal tumbled more than five per cent on Tuesday, its sharpest single-day fall in half a decade, marking a sudden reversal for investors who had flocked to gold as a safe haven against inflation and currency weakness.
UCSI University Malaysia associate professor in finance Dr Liew Chee Yoong said in gold trading, daily fluctuations of 0.5 to 1.5 per cent are considered normal, with moves beyond two per cent already drawing attention.
"A single-day drop exceeding five per cent is an extreme event, firmly placing it in the category of a market capitulation," said Liew, who is also a research fellow at the Center for Market Education.
"This classification accurately reflects the proposed framework where moves above three per cent are considered extreme, typically reserved for periods of major fundamental repricing or technical breakdowns."
On Tuesday, gold fell as much as 5.31 per cent to around RM560.79 per gram, before easing slightly to RM556.72 per gram at the time of writing.
Liew said that while the speed of the sell-off may hint at an overreaction, it likely signals a broader trend reversal if the US dollar remains strong and real yields stay elevated.
SPI Asset Management managing director Stephen Innes said the drop was less about a change in fundamentals and more about the market "catching its breath" after an overcrowded rally.
"For months, gold's rally had been fuelled by conviction that chronic fiscal deficits, rising public debt, and persistent inflation would erode fiat credibility and send investors scrambling for hard assets.
"But the story got ahead of itself. The dollar has not buckled, treasury yields remain stable, and both physical and official (central-bank) buying have lost momentum," he told Business Times.
Innes noted that a single-day decline of over five per cent is highly significant by historical norms, as gold typically moves less than one per cent in stable markets and around one to two per cent during volatile periods.
He explained that any movement exceeding three per cent is considered extreme, meaning the recent drop is well beyond normal ranges — though it does not necessarily signal an overreaction.
"When an asset has climbed nearly US$2,000 over a few years, a US$300 drop feels violent in the short term but proportionally less dramatic in context.
"It is the market's way of restoring balance, not necessarily signalling the end of the story," Innes said.
Both analysts said investors should closely monitor the US Dollar Index (DXY) and Treasury Inflation-Protected Securities (TIPS) yields to gauge whether the downward pressure on gold will persist.
Liew said a sustained drop in the dollar or real yields could signal that gold's correction is nearing its end, while continued strength in both would imply a longer-term downtrend.
"All communication from the Federal Reserve and incoming economic data particularly inflation and employment figures will be paramount.
"Any hint of a dovish pivot toward potential rate cuts would provide strong support for gold, while persistent hawkishness would act as a continued headwind," he said.
Innes said attention is also turning to physical demand, especially from Asia.
"If central banks and Asian buyers remain quiet, gold could stay vulnerable. How the Shanghai Gold Exchange trades this week will offer a real-time gauge of sentiment.
"For now, gold's fever may have broken, but the faith that fuels it remains alive," he said.
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