Loading ...Three Reasons Gold Just Collapsed & Why This Isn’t 1982!
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H/T TO BULL THEORY FOR CHART
It was the worst week for gold in 43 years. A stunning 10.5% collapse that took the price from over $5,000/oz to just under $4,500/oz in five trading days. You have to go all the way back to 1982 to find a weekly drop of this magnitude. But what makes this crash so historically unusual; and so profoundly bullish, is not its size, but its context.
Every major gold crash in modern history has been driven by a clear and present fundamental threat;
- In 1982, it was the Federal Reserve hiking interest rates close to 20% to crush inflation.
- In 2013, it was the Fed signaling the end of quantitative easing.
- In 2022, it was the most aggressive rate hike cycle in four-plus decades.
In each case, the narrative made sense. The macro-environment was hostile to gold, and the price reacted accordingly.
This time is different. The backdrop for this crash is not bearish; it is wildly bullish. A hot war is raging in the Middle East. Oil refineries are burning. The U.S. has deployed three carrier strike groups to the region. Inflation is rising.
These are the very conditions in which gold is supposed to thrive.
And yet, it just posted its worst performance since the peak of the Volcker era. This is not a fundamental story. It is a mechanical one. And that is the key to understanding what comes next.
Let’s Dig Into The Following:
- A Historic Anomaly: Gold just posted its worst weekly drop in 43 years, a 10.5% decline to $4,490/oz, despite a fundamentally bullish geopolitical and inflationary backdrop.
- Mechanical, Not Fundamental: This was not a crisis of confidence in gold. It was a mechanical liquidation driven by three simultaneous forces: 1- a surging U.S. dollar, 2- forced selling from commodity funds covering oil margin calls, and 3- a Chicago Mercantile Exchange margin hike that flushed out leveraged players.
- The 1982 Precedent: The last time gold had a week this bad was in 1982. In the 12 months that followed that crash, gold rallied 50%.
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