“Single-day drops of 6 per cent almost never happen, even when there are major geopolitical events like war or financial crises. It shows how spooked by the size and speed of the gold rally investors have become,” chief investment officer David Tuckwell told InvestorDaily.
He said the steepest dip in more than a decade wasn’t driven by nervous mums and dads lining up for coins in Martin Place but was the work of whales – most likely hedge funds using heavily leveraged futures to unload fast and hard.
“A daily drop of this magnitude is extraordinary. It requires approximately 150 tonnes of net selling of gold in a day – the dust hasn’t settled yet,” he said.
Tuckwell pointed to concerns around momentum reversal, particularly amid retail investor herding.
“Without conclusive evidence, my strong suspicion is that profit taking is the primary trigger,” he said.
“While gold is down 6 per cent today, this drop comes in the context of a 25 per cent rally in the past two months alone. Meaning gold traders are overwhelmingly sitting on paper profits of some kind.”
The sharp fall comes as investors await a critical inflation report due out in the US on Friday – though Tuckwell doesn’t see it as a likely market mover.
“My own feeling is that it is likely small and marginal. Gold is usually used more as an event hedge than an inflation print hedge per se. The correlation between short-term gold price moves and short-term inflation prints is modest,” he said.
“Investors wanting to hedge inflation are perhaps better served by investing in oil, which has a stronger correlation here given the prevalence of oil and its derivatives (like plastic) in inflation baskets.”
Despite the volatility, Betashares believes gold’s structural case remains intact.
Senior investment strategist Cameron Gleeson said a sharp decline was always a possibility after gold’s record-breaking run – and the focus now turns to the market’s next move.
“Given gold’s record-breaking rally, pushing well through US$4,000 an ounce, it’s not surprising to see a pullback overnight. However, given the sizable correction, it raises the question – will we see support around the US$4,000–US$4,100 level, or did we just witness a bubble popping?” Gleeson said.
Given current dynamics in the US and ongoing geopolitical risks, he believes the longer-term outlook for gold remains strong.
“China’s central bank has been consistently buying gold, providing structural support, yet gold still only makes up ~8 per cent of its total foreign reserves, well below the global average of around 22 per cent.”
Gold exchange-traded funds (ETF) have seen $1.3 billion in net flows since the start of 2025, pushing total funds under management in the asset class to $9.6 billion.
“This year investors have been playing catch-up, with strong gold bullion ETF inflows after several years of outflows. Perhaps some investors have got a bit ahead of themselves, as US–China trade tensions appear to be easing, for now. But gold is a hedge against concerns around Fed independence, ballooning US government debt and a continued decoupling of the world’s largest powers. These forces aren’t going anywhere soon and, in some cases, may even accelerate,” Gleeson told InvestorDaily.
Tuckwell agreed that gold’s long-term story remains compelling, particularly as investor demand begins to replace central bank buying as a dominant force.
“The past 24 hours are a sharp reminder that when too many people pile in, gold can fall just as fast as it rises,” he said.
With retail investors recently jumping aboard – evident in long queues outside gold brokerages – Betashares warns this is a timely reminder of the importance of diversification.
“Even overnight, the benefits of a multi-asset portfolio were apparent. While gold was down, equities and bonds were flat. Over the course of 2025, gold has remained one of the best hedges against periods of weakness in the sharemarket,” Gleeson said.
Tuckwell added, “Large queues in Martin Place of retail investors herding into gold coins [and] bars suggests to me that too many Australian investors are acting like sheep.
“Australian investors should also keep in mind that the gold coin and bar market is essentially unregulated – this makes it very different to the sharemarket. It also opens the door to more dubious sales like conflicted sales commissions.”
