Gold Suffers Fifth Worst-Day Drop in 55yrs As Momentum Trade Unwinds

For some time now, I’ve been saying that gold had effectively become a pure momentum trade — one where the yellow metal was denied any meaningful pullback as traders chased prices higher. It always ends with a thud, and that’s exactly what we saw on Tuesday, with spot prices plunging 5.7%.

Not only was it a particularly volatile session, but it also ranked as gold’s fifth most bearish trading day on record, dating back to 1970. The drop was only slightly behind the 5.8% sell-offs seen in March 2008 and September 2011.

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Chart analysis by Matt Simpson, Source: TradingView, COMEX Futures, Gold, LSEG        

Hindsight is a wonderful thing, but the sell-off did not come without warning. Daily volatility had been rising alongside prices for more than a week, while a bearish divergence had formed against extremely overbought RSI(14) levels. More importantly, Friday’s bearish engulfing candle was accompanied by the highest daily volume since August 2020. This suggested that bearish initiation was far greater than expected given the day’s range — and that sellers held their ground at least through to yesterday. Tuesday’s trading volume was also gold’s second-highest daily print in over five years.

Gold Futures (GC) Technical Analysis

The 1-hour chart shows clear bearish follow-through from Tuesday’s sell-off, followed by a swift rebound at the monthly pivot just above the $4,000 level. Given the significance of this area for gold, an immediate break lower appears unlikely.

The RSI(14) also formed a bullish divergence and is now curling higher from oversold territory. This rebound, coupled with renewed two-way volatility, could see prices retest resistance near the weekly R2 pivot around $4,150. However, with the weekly pivot and Friday’s swing low near $4,200, bears may look to reload and attempt another push towards $4,000 in the near term.

Chart analysis by Matt Simpson - Source: COMEX, LSEG

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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