Gold Plunges for a Week, '1983 Great Sell-Off' Repeats, Middle East 'Selling Gold for Funds'?
Gold recorded its worst weekly decline in 43 years, echoing the historic 1983 sell-off. Spot gold fell for eight consecutive days, while silver dropped over 15%, with palladium and platinum also declining.
The sell-off was triggered by escalating Middle East conflicts, which raised energy prices and reduced expectations for Fed rate cuts. Markets now price a 50% chance of a Fed hike by October. Higher inflation expectations and rising real interest rates diminished gold's appeal as a non-yielding asset. Additionally, tightening dollar liquidity, reflected in widening cross-currency basis swaps, intensified pressure on gold, often liquidated first during dollar shortages.
Technical indicators worsened, with RSI falling below 30, triggering stop-losses and self-reinforcing selling. Gold ETFs saw outflows for three straight weeks, losing over 60 tons.
The current situation parallels the 1983 crash when OPEC nations, facing falling oil revenue, sold gold reserves to raise cash, causing a rapid price collapse. Then, as now, Middle Eastern selling pressured gold, with impacts spreading across commodities.
Despite a 4% year-to-date gain, stagflation risks are rising. Goldman Sachs estimates energy price increases could reduce global growth by 0.3% and raise inflation by 0.5-0.6%. Gold's future depends on real interest rates and geopolitical developments—continued conflict may sustain pressure, while de-escalation could revive safe-haven demand.
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