That’s the question every gold trader is asking right now.
Yesterday, gold fell 5.3%, marking the 10th largest single-day loss since 1990 — and the largest in more than five years. What makes the move even more interesting is where it happened: while gold was above its 200-day moving average — in other words, still within its longer-term uptrend.
Historically, there have only been four other instances where gold dropped more than 5% in a day while trading above its 200-DMA. The pattern that follows these events is telling:
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When gold is in a longer-term uptrend, forward returns tend to be more muted.
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When it’s in a downtrend, large drops often lead to strong rebounds.
It’s a small sample size, but worth noting that in prior cases, gold was flat or lower 12 months later in all but one instance.
So the question becomes — is this more like 1993, where gold eventually fell another 30%, or 2006, when it consolidated before surging nearly 200% higher?
My view: Tuesday’s move provided some much-needed relief after an overheated run. It may have shaken out weak hands, but the broader trend remains intact — and I think gold ultimately heads higher from here.
