Gold’s sharp decline signals a market correction – Truist

[Golden Piggy Bank and Abstract Coins on Digital Screen with a Financial Chart]
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Gold’s (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) recent decline signaling a correction that should continue, according to Truist Advisory Services strategists.

Gold (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) experienced its largest single-day decline since 2020 on Tuesday, with silver (XAGUSD:CUR [https://seekingalpha.com/symbol/XAGUSD:CUR]) also selling off sharply following significant year-to-date gains.

“No single catalyst drove the selloff; rather, gold’s (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) recent upward trend had moved at an unsustainable pace, leaving it vulnerable to a sharp reversal,” said Keith Lerner, CIO and chief market strategist at Truist Advisory Services.

The precious metal had rallied more than 65% for the year, accelerating sharply in the past month and pushing prices to more than 30% above the 200-day moving average – the largest deviation from its trend since 2006.

“Much like a rubber band that becomes stretched too far, the eventual snapback can be sharp,” Lerner said, highlighting how quickly momentum can reverse when market conditions become unsustainable.

Daily declines exceeding 5% in gold (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) are historically rare events, with only 44 instances recorded since the end of Bretton Woods in 1971, the Truist analysis showed.

[Gold and 5% down days]
Gold and 5% down days (Truist IAG, FactSet, OTC, Gold = NY Gold, USD/Troy Ounce)

These sharp drops typically cluster around cyclical turning points or during the late stages of uptrends, while short-term rebounds following such declines are relatively common, longer-term outcomes present a more mixed picture, Lerner said.

The 12-month outlook appears particularly challenging, as Truist strategists pointed out that median returns a year after such sharp daily drops have historically been negative, with positive results in only about 40% of cases.

“These episodes often signal market exhaustion and precede periods of correction or consolidation, though the range of outcomes can be wide,” Lerner cautioned, while maintaining that key long-term positive trends – including central bank buying, persistent geopolitical risks, and ongoing debasement concerns – remain intact.

The strategist expects this correction to continue, recommending patience as the market digests recent gains.

“Structurally, we remain positive as the current upcycle appears early relative to historical cycles,” he said, emphasizing that while near-term risk/reward is less favorable, “gold’s (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) role as a portfolio diversifier and safe haven remains intact, and we would look at deeper pullbacks as potential opportunities for those not invested in the asset.”

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