Gold and silver have rarely plummeted in years! During the session, gold fell over 6%, and silver dropped nearly 9%, as Wall Street sounds the alarm for a correction

After several consecutive days of hitting new highs last week, the precious metals market suddenly turned. On Tuesday, October 21, gold and silver experienced a rare plunge not seen in years.

As of Monday, gold, which had set intraday historical highs for the sixth consecutive trading day, recorded its largest drop in twelve years. When U.S. stocks hit a daily low in the early trading session, spot gold approached $4,082, down about 6.3% for the day, marking the largest intraday drop since April 2013, while New York futures gold fell to $4,093, down 6.1% for the day.

Silver also refreshed its daily low during the early U.S. stock trading, with spot silver dropping below $47.90, down nearly 8.7% for the day, marking the largest intraday drop since February 2021, while New York futures silver fell to $47.12, down about 8.3% for the day.

Multiple factors are pressuring precious metal prices. Investors are focused on talks reportedly scheduled for next week, expecting that trade tensions will ease, which has weakened the safe-haven demand for precious metals. Additionally, the strengthening dollar, overbought technical indicators, and opaque investor positions have intertwined to end the previous upward trend in precious metals.

This sell-off coincides with the U.S. government shutdown, which has led to a lack of critical position data. Ole Hansen, a commodity strategist at Saxo Bank, warned that speculative long positions may have accumulated significantly, making gold and silver more susceptible to corrections. The end of India's seasonal buying frenzy has also intensified market pressure.

Despite the severe declines, some analysts believe that the fundamental factors supporting the rise of precious metals have not changed, and potential buying interest may limit the extent of the corrections.

Overbought Technicals Trigger Profit-Taking; Lack of Position Data Intensifies Uncertainty

The relative strength index for gold indicates that prices have deeply entered the overbought zone. Hansen stated that traders have increasingly worried about the risks of corrections and consolidations in recent trading days. "It is during corrections that the true strength of the market will be revealed, and this time should be no exception; potential buying interest may limit any corrections."

Volatility in precious metals has surged recently, with traders seeking to hedge against potential price declines in other portfolios or profit from the downturn. Last Thursday and Friday, the trading volume of options contracts linked to the world's largest gold ETF exceeded 2 million, breaking previous records.

Due to the ongoing U.S. government shutdown, commodity traders are unable to access the weekly position reports released by the U.S. Commodity Futures Trading Commission, which typically show the positions of hedge funds and other fund management institutions in U.S. gold and silver futures. The lack of this data may make it easier for speculators to establish abnormally large one-sided positions.

Hansen pointed out that the timing of the lack of position data is very delicate, and speculative long exposure in both metals may have accumulated significantly, making them more susceptible to corrections Maximilian Layton, the head of commodity research at Citigroup, predicted in a report that the end of the U.S. government shutdown, along with the announcement of trade-related agreements, will drive gold prices to consolidate in the next two to three weeks. Citigroup maintains its gold price target of around $4,000 per ounce, noting that this price was previously seen as an ideal level but is now viewed as a "bearish" expectation.

Divergence in Analyst Opinions

Kathleen Brooks, research director at XTB, commented on Tuesday that the sudden drop in gold and silver prices lacks a clear trigger and may be due to overvaluation and signals that U.S. CPI data could be below expectations. She believes that the price decline may not necessarily be a bad thing, indicating that investors are not overly aggressive and that there is an upper limit to gold's upward momentum. Despite the drop exceeding expectations, the fundamental factors driving gold and silver prices remain intact.

Soojin Kim, a commodity analyst at Mitsubishi UFJ Financial Group, pointed out that although there are signs that the upward trend may be excessive, investors continue to buy gold. On Monday, easing trade tensions brought optimism, with spot gold rising nearly 3.1% at one point during the session. Since 2025, gold has accumulated a rise of over 65%, and despite technical indicators showing overbought conditions, demand remains strong.

Bloomberg strategist Tatiana Darie stated that the absolute value of ETF gold holdings has not yet reached past peaks, and upward trends often last longer. However, history shows that momentum will eventually fade, and in most cases, buying will turn into selling. If delayed data ultimately shows that the U.S. economy is stronger than expected, gold could experience a more significant pullback.

Silver Market Facing Supply Adjustments

After soaring nearly 80% this year, silver has also seen a significant drop, driven by macro factors supporting gold and historic short squeezes in the London market. The benchmark price is higher than New York futures, prompting traders to ship metal to the UK to alleviate tensions.

On Tuesday, silver associated with the Shanghai Futures Exchange experienced its largest single-day outflow since February, and New York inventories also declined