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

Gold plunged 5.7% in its fifth-worst session since 1970 as the momentum-fuelled rally snapped, leaving traders watching $4,000 for support.

Matt Simpson
Matt Simpson

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Gold Suffers Fifth Worst-Day Drop on Record 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.

 

 

 

Daily chart of COMEX Gold Futures showing a sharp -5.7% selloff following a failed breakout above $4,000. The chart highlights the highest bearish volume day since April 2020, a bearish RSI divergence ahead of the drop, and a historical comparison to a similar false break above $3,000 earlier in the year. Chart analysis by Matt Simpson – data source: TradingView.

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.

 

Whitepaper
Whitepaper

 

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.

1-hour chart of COMEX Gold Futures showing price action rebounding from the $4,000 level after a sharp sell-off. The chart highlights key pivot levels at $4,150 and $4,200, a potential retest scenario, and a bullish RSI divergence signalling short-term recovery potential. Chart analysis by Matt Simpson – source: COMEX, LSEG, TradingView.

Chart analysis by Matt Simpson - Source: COMEX, LSEG

 

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-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

 

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