Following a bull run that sent gold prices soaring to an all-time high earlier this week, gold exchange traded funds (ETFs) have been hit with a sharp correction overnight. Investors on the heels of record-setting jolt rides were puzzled when prices retreated by almost 3.5% in a single session, sinking ETF valuations on a single day after prices slumped. Although the gold “safe haven” appeal of gold is still fundamentally strong, profit-booking together with changes in the macroeconomic data forced this moderation phase, this cooling-off.
Why did gold ETFs plummet after its record-setting surge?
There were many reasons for that short-lived “flash correction” in the yellow metal:
Massive Profit Booking: When gold prices approached psychological resistance, institutional investors and hedge funds began to “lock in.” This concerted selling resulted in a technical pullback from overbought territory.
A Hawkish Federal Reserve: According to new American data, inflation is stickier than anticipated. As a result, speculation has abated that the Fed could delay cutting interest rates. High interest rates are bad news for gold, a non-yielding asset.
Yield spike for US 10-Year Treasury yields: Soaring bond gains; with rising yields, investors tend to switch from Gold ETFs into bonds, giving a fixed return, which naturally moves bullion lower.
Easing Geopolitical Friction: Rumors of a diplomatic “framework” or “de-escalation” across key conflict zones (the Arctic/Greenland row, Middle East tensions) eased some of the immediate “panic premium” that typically drives up gold prices.
Should You "Buy the Dip" or Hold a Wait?
For retail investors, the essential issue is whether this is a temporary blip or the beginning of a bearish trend.
1. Why buy the dip: Long-term fundamentals in gold are still intact. Central banks especially in China, India and Turkey are still adding physical gold to their reserves. In addition, with global debt at record levels, gold is the ultimate hedge. Commenters suggest a dip towards the 50-day moving average is an important entrance point for people who look at it in one-three year terms.
2. The Case for Looking Ahead: Technical analysts say "the falling knife" still has not hit the ground yet. There’s room for gold to fall another 2% to 4% to test the 200-day moving average if it doesn’t maintain its current support levels. For risk averse investors, they may want to wait for the price to reach a stable resting (shifting sideways) state for at least three trading sessions before introducing new capital.
Expert Verdict
“Gold is experiencing a healthy correction,” said Kavita Chacko, a senior commodity analyst. “So big and so rapid was the record jump. For systematic investors (SIP), perfect to pile up. We recommend staggered entry for lump-sum investors — investing 30% now and leaving the rest to see how markets take another dip."
