Spot gold plunges 4.5% - What support can bring investors back to a balanced state?

On December 30th, the spot gold market entered a technical recovery phase after a historic plunge on Monday. Gold prices are currently trading around $4,375/ounce, up approximately 1% from the lows, with buyers gradually regaining short-term control. However, after a sharp decline of over 4.5% from the record high of $4,549.71—marking the largest single-day drop since October 21—questions arise: Are the fundamental support factors for gold still solid or have they been shaken?

Why did gold prices crash so sharply?

The direct cause of Monday’s sharp decline was not due to any bad economic news, but mainly technical factors and market liquidity. The Chicago (CME) commodities exchange recently increased margin requirements for gold and silver futures contracts. This decision directly raised the holding costs for traders. As a result, a large-scale profit-taking wave was triggered, pushing prices down close to $4,300.

Additionally, year-end liquidity tends to dry up as US and European traders enter holiday periods. In a low-liquidity environment, any sell orders can amplify volatility dramatically. Analyst Kyle Rodda pointed out that the low liquidity during this period acts as an “amplification mechanism,” distorting market trading.

What do technical indicators reveal?

On the 240-minute chart, gold is currently in a sensitive position. The Relative Strength Index (RSI) of gold before the decline had entered an oversold zone, accumulating significant correction pressure. Any small fluctuation could trigger concentrated profit-taking.

Currently, gold is trying to regain the 60-period moving average ($4,454.19), while the middle band of Bollinger sits at $4,354.61—just above the recent price level gold approached. The $4,300–$4,350 zone becomes a critical boundary, where multiple technical supports, round psychological levels, and Fibonacci retracement areas converge. This will be a test of the short-term strength of buyers and sellers.

Are long-term fundamentals shaken?

Despite the sharp decline, the core support factors for gold remain intact:

Monetary policy: The market expects the Fed to begin rate cuts in 2026. While the likelihood of an immediate rate cut in January is low, expectations of at least two cuts next year remain firm. In a low-interest-rate environment, the opportunity cost of holding non-yielding assets like gold decreases significantly.

Geopolitical risks: The Russia-Ukraine situation still carries potential instability, continuously fueling safe-haven demand. Gold remains the ultimate hedge asset amid geopolitical tensions.

Deep structural shifts: Since 2022, many global central banks have been steadily increasing their gold reserves. This buying activity, driven by national strategies, provides strong demand. Meanwhile, the investment community is reconsidering traditional 60/40 (stocks-bonds) asset allocation models, promoting increased gold and tangible assets in core portfolios.

These factors are especially important because they keep gold in a long-term balanced state, limiting deep declines and establishing a foundation for sustainable appreciation.

Short- and long-term outlook

Short-term (a few days to a few weeks): The market will mainly absorb the intense volatility from Monday. Year-end low trading activity may continue to cause sharp price swings. The upcoming December Fed meeting minutes will be a focal point. Gold prices are likely to fluctuate within the range of $4,300–$4,450, using this time to recalibrate technical indicators.

Medium and long-term (by 2026): The supporting logic for the gold market has not been broken, but its form will change. Analyst Kelvin Wong remains optimistic, suggesting that the target price in the next six months could reach $5,010. According to expert Robert Gottlieb, the market is shifting from speculative momentum to a demand-driven era—providing a more solid upward foundation.

However, investors should not expect a repeat of the impressive gains of 2025. The market will focus on real interest rate expectations, geopolitical events, and the dollar trend. Volatility will become the new normal, with frequent sharp corrections—mainly healthy market rotations rather than signals of a bull market end.

Conclusion

The 4.5% drop in gold is a consolidation of overbought technical conditions and short-term liquidity risks. Despite the intense movement, it does not undermine the long-term bullish fundamentals. For investors, understanding the shift from “frenzied breakout” to “steady progress”—from speculative momentum to structural demand—is key to adapting to this new phase of the gold market.