Gold prices suffered a sharp reversal on October 21, 2025, plunging 5.32% to close at $4,123 per ounce — its steepest single-day fall in five years.
The drop snapped a weeks-long rally that had propelled the metal to a record high of $4,355 just a day earlier, marking a dramatic turn in what had been one of the year’s strongest commodity runs.
The retreat came after what analysts described as “extremely overbought conditions,” with traders cashing in profits following gold’s meteoric climb above $4,000.
Nicky Shiels, Head of Metals Strategy at MKS PAMP, called the move “a natural correction after weeks of strong gains,” emphasizing that the market had “simply run ahead of itself.”
Rally Fueled by Geopolitical Tensions
Gold’s surge through September and early October was largely driven by geopolitical tensions and expectations of U.S. interest rate cuts.
UBS, in a report titled “In Gold We Trust,” linked the rally to worsening U.S.–China relations and a weakening dollar, both of which bolstered gold’s appeal as a safe-haven asset.
The Swiss bank had earlier revised its 2026 price forecast upward to $4,500 per ounce after gold broke past its $3,900 target. The analysts noted that “as long as dollar weakness and political uncertainty persist, gold remains a preferred store of value.”
Trump’s China Outreach Triggers Market Reaction
That bullish sentiment cooled sharply after U.S. President Donald Trump signaled an intention to visit Beijing next year, raising hopes of a thaw in U.S.–China trade tensions. “I’ve been invited to go to China, and I’ll be doing that fairly early next year,” Trump told reporters on October 19. “I think we’re going to have a fantastic deal with China — one that’s great for both countries and for the world.”
The President also acknowledged ongoing trade brinkmanship, saying, “Beijing threatened us with rare earths, and I threatened them with tariffs,” but added that his “strong relationship with Xi” would help both nations strike “a very fair deal.” Markets interpreted these remarks as a possible shift toward diplomacy, sparking a rebound in the U.S. dollar and triggering gold’s steep correction.
Gold–Dollar Correlation Reasserts Itself
The U.S. Dollar Index (DXY) rose 0.38% on October 22 following Trump’s comments, reinforcing gold’s inverse relationship with the greenback.
UBS analysts said this negative correlation “remains firm,” as investors continue to hedge against currency volatility through precious metals.
Year-to-date, the dollar has fallen over 8%, creating space for currencies such as Nigeria’s naira and Ghana’s cedi to gain marginal strength.
Meanwhile, gold has risen more than 50% in 2025, with silver outperforming it by soaring 67% amid similar safe-haven demand.
However, analysts caution that if the U.S. economy continues to rebound and monetary tightening resumes, gold’s momentum could weaken further. “A stronger dollar would pressure safe-haven metals like gold,” UBS noted, adding that “the market may need a new catalyst to sustain its record highs.”
Market Outlook
Despite the sudden downturn, most analysts view the drop as a temporary correction rather than the end of the bull run. With inflation concerns lingering and central banks maintaining elevated gold reserves, the long-term fundamentals for the metal remain intact.
Still, after its worst daily decline since 2020, traders are expected to watch U.S.–China relations and Federal Reserve signals closely for cues on whether gold can reclaim its shine before year-end.
