Gold and silver prices plunged on Friday, ending a strong rally that had metal prices breaking multiple records this year. Spot gold fell 6% to $5,080.14 an ounce, and spot silver fell 14% to $99.89 after surging. The rise in gold prices has been fueled by geopolitical, economic and trade uncertainties, as well as a weaker dollar (remaining relevant factors), with investors seeking refuge in ‘safe havens’, while silver has also benefited from industrial demand. Ed Yardeni, president of Yardeni Research, said the recent decline in stock prices may have been caused in part by easing concerns over U.S. fiscal brinkmanship after Democrats and Republicans reached a tentative agreement to avert a government shutdown. xau= “A return to $5,000 and some consolidation around that price would be the normal pattern for a bull market. So far, this has been more of a crash than a traditional bull market for precious metals.”Other experts pointed to the speed and structure of the decline itself. Gregor Gregersen, founder of precious metals dealer Silver Bullion, said the sudden nature of the decline suggested something a little different from orderly profit-taking. “If a company is making a profit and liquidating large holdings of gold or silver, they will do so gradually to get the best price possible,” Gregersen said. “What we saw was a significant decline in a very short period of time without any obvious public factors behind such selling pressure.” This raised the possibility that the move was “intended” to cause further declines, he added. Do you have time to enter? Will the pullback be a good entry point for investors who missed out on the recent rally? Friday’s drop aside, prices are still rising, with gold remaining about 20% higher year-to-date, while silver prices are still over 50% higher. Analysts interviewed by CNBC generally agreed that the rise in stock prices has pushed up prices in the short term. Manpreet Gill, Standard Chartered’s chief investment officer for Europe, Africa and the Middle East, said the bank’s own signals show both metals are in overbought territory. “The short-term technical backdrop is tough,” Gill said. He noted that the gold-silver ratio is nearing its extreme lows near 31, last seen in 2011, which historically signals a period of consolidation ahead. “In such a case, gold could see a gradual consolidation, but silver is more volatile so we could see more swings,” Gill said. In practice, consolidation means that instead of continuing to rise in a straight line, prices may pause, move sideways, or slowly fall back after a strong rise. But consolidation doesn’t necessarily mean a sharp reversal, he added. Despite the volatility, many market watchers argue that bigger risks may remain entirely on the sidelines. Gold, in particular, has been buoyed by a combination of geopolitical tensions, fiscal uncertainty, and concerns about currency depreciation, factors that many believe are still here to stay. “I don’t think it’s too late for investors to trade,” said Afdar Rahman, executive director of wealth advisory at OCBC. “The recent rally has been very rapid, which naturally increases short-term pullback risks, but the structural drivers behind this rally remain intact.”However, higher prices have narrowed the margin of error. “Given the price situation, this may not be a market you want to go all in on at once,” Rahman cautioned. “A gradual or step-by-step approach may make more sense,” said Xavier Wong, market analyst at eToro. “Just because prices are at record highs doesn’t mean it’s too late.” “The mistake is not that we missed the rally, because we are assuming there will be no volatility along the way.” But he noted that with prices still high, the margin for error is smaller and the timing of entry becomes more important. From a technical perspective, gold looks overbought, with momentum indicators pointing to the possibility of a bit more of a rebound. “This is very hard to ignore,” he said, referring to gold trades with a relative strength index above 90. The Relative Strength Index (RSI) is a technical indicator that measures the speed and magnitude of recent price movements. Values above 70 typically indicate overbought conditions, while levels above 90 suggest prices are stretched and potentially vulnerable to a pullback. Longer term, Standard Chartered’s Gill said the bank remains bullish on gold, maintaining an overweight position compared to a neutral portfolio allocation. Standard Chartered’s balanced model portfolio has a long-term gold allocation of 6%. “Investors who are underweight gold should gradually add towards their goal, while those already in that allocation can maintain their positions,” he said, adding that while exchange-traded funds offer liquidity and ease of access, physical gold may be better suited to long-term investors who value asset preservation. “The positioning therefore favors gradual accumulation for long-term investors, but tactical short-term trades should be wary of pullbacks,” Gill added. Similarly, Heidi Sam, global head of product specialist for liquid real assets at DWS, said investors could consider physically backed gold or silver ETFs as their core exposure as they provide transparency and access to daily liquidity.
