Rapid rise and sharp fall! Gold and silver prices plunged from their highs, putting an end to the record-breaking rally.

With investors worried that the recent historic surge in precious metals prices has led to overvaluation and profit-taking, gold and silver prices have seen the most intense sell-off in years. On Tuesday, the price of spot gold plummeted by over 6.3%, marking the largest single-day drop in over a decade; spot silver saw an even greater drop of 8.7%. Prior technical indicators had already shown that the previous gains in these metals may have been excessive. Swiss resource investor Alexander Stahel commented, "It is extremely rare to see a single-day drop of over 5%, theoretically, it may only occur once every hundred thousand trading days." This sudden plunge has abruptly ended the upward trends in gold and silver prices. Just in the past week, both gold and silver had reached historic highs. The significant increase in gold prices was mainly due to two reasons: investors betting that the Federal Reserve will implement a significant rate cut before the end of the year, and the so-called "devalue trade," where some investors are withdrawing from sovereign debt and currency markets to avoid the risks of uncontrollable budget deficits. Frank Monkam, Head of Macro Trading at Buffalo Bayou Commodities, stated that the gold pullback is the result of multiple strong technical indicators. He believes that gold has strong support in the $4000 to $4050 range, and expects the price to rise again after moving out of the overbought territory. He stated, "Position clearing through ETFs and fund flows guided by emerging market central banks will lay the foundation for the next round of gains." Helen Amos, a commodity analyst at BMO Capital Markets, analyzed that the record-breaking surge since September last year had mainly been driven by trend followers. This trading pattern "naturally carries reversal risks, as long as there are consecutive days of price corrections, trends may reverse." The strengthening of the US dollar has also weakened the appeal of precious metals. Furthermore, with the closure of markets in India, the world's second-largest gold buyer, due to the Diwali festival, market liquidity has significantly decreased. The recent performance in the silver market has been particularly dramatic - unlike gold, which is simply used as a store of wealth, silver also has industrial properties. Last week, the London silver market experienced historic supply constraints, pushing prices above the historical peak set during the Hunt brothers' market manipulation period in 1980. A rush for silver led traders to urgently shift supplies from the UK to alleviate shortages. On Tuesday, silver outflows from designated warehouses at the Shanghai Futures Exchange reached a new high since February, with New York inventories simultaneously decreasing. Last week, gold prices surged to historic highs, partly due to investor concerns about the credit quality of the US economy. World Gold Council data shows that these concerns drove a massive $8 billion influx into physically-backed gold ETFs last week, marking the largest weekly inflow since records began in 2018. Amos stated, "When a large amount of capital flows rapidly into a market, once investors see short-term returns, there will naturally be some outflows - this is a normal phenomenon." Additionally, the ongoing government shutdown in the US has caused commodity traders to lose an important tool - the weekly report from the US Commodity Futures Trading Commission (CFTC), which reflects hedge funds and other fund managers' positions in gold and silver futures. Without this data, speculators may be more inclined to build unusually large one-way positions. Ole Hansen, Commodities Strategist at Saxo Bank, pointed out, "At the current sensitive period, speculative long positions in gold and silver may have been continuously accumulating, making them more prone to corrections, and the lack of position data exacerbates this risk." The surge in gold prices since 2023 has attracted more mainstream investors. However, these investors typically have a lower level of engagement in trading and tend to take profits, further exacerbating the current price correction. Nevertheless, the long-term factors that have been driving gold to new highs, including continued gold purchases by major central banks, remain unchanged. Analysts still expect gold prices to resume their upward trend in the coming months. Amos from BMO stated, "We are bullish on the gold market, believing that its fundamentals are still strong. We predict that gold prices will reach around $4500 per ounce next year. But no asset price will rise in a straight line, and corrections themselves have positive implications - we believe that some fluctuations in the market during the upward trend are inevitable."