Source: Jin10 Data
The gold market exhibited unusual behavior on Thursday. Jesse Colombo, independent precious metals analyst and founder of BubbleBubble Report, said the divergence between gold prices, the U.S. dollar index, and U.S. Treasury yields made it difficult for him to determine the true cause of this sell-off.
Colombo told Kitco News on Thursday that he was trying to figure out what exactly was happening in the gold market.
“The trend is very unusual,” he said. “The US Dollar Index is falling. Normally, on a day like this, you’d expect the US Dollar Index to rise by 1%, but instead, it’s dropped 15 basis points.”
Colombo also noted that the Japanese yen has strengthened significantly. He believes this could indicate market intervention aimed at pushing the yen higher, which typically bears negative implications for the dollar.
He said, "Normally, this would push precious metals higher. But today, precious metals fell alongside the dollar—although the dollar's decline was modest. Meanwhile, bond yields are falling, yet they haven't provided any support to precious metals either. This performance is highly unusual."
Crude oil prices rose slightly, but Colombo believes the increase is not enough to explain the magnitude of this week's decline in gold.
As of the time of this article's update, spot gold fell below $4,000 per ounce during Friday’s trading session, the first time since July, down 0.6% on the day. Brent crude rose above $110 per barrel, the first time since May 5, up 0.84% on the day; WTI crude surpassed $100 per barrel, up 1.35% on the day.
Two possibilities: Tech stock sell-off triggering liquidations, or yen intervention suppressing the dollar?
Colombo believes the decline in gold may be linked to a chain reaction triggered by selling in tech stocks. As AI-related stocks were sold off, stock markets in North America and globally came under pressure, potentially forcing investors to liquidate positions, which in turn affected the precious metals market.
I suspect this is partly due to technical factors, along with some unwinding of positions related to AI and tech stocks, which may be contributing. Some of the decline could also stem from risk-off sentiment ahead of next week’s Fed meeting, particularly as markets worry that Powell may again signal a hawkish stance.
However, the performance of the dollar and U.S. Treasury yields has led Colombo to question the simple liquidation explanation. Typically, if markets shift to safe-haven assets due to selling of risk assets, the dollar tends to gain support, but the dollar did not strengthen as expected on Thursday.
Colombo said that U.S. Treasuries appeared to be the biggest beneficiaries on Thursday. But he noted, "However, typically in such situations, the dollar also strengthens, and that hasn't happened this time."
He suspects that yen intervention may explain this divergence.
Perhaps yen intervention offset the support the dollar should have received. I haven’t seen any news about it… Sometimes, markets report such actions only afterward, but I suspect that yen intervention did occur.
Colombo shared a chart showing confirmed yen interventions since February. He believes that Thursday’s market movement resembles part of the behavior seen during those interventions and could be the beginning of a new round of intervention.
He said: "This aligns with the large green vertical bars on the charts over the past few months, all of which were confirmed yen interventions. Today, we’re seeing the beginning of a similar pattern. Sometimes interventions occur in succession, so it’s possible we could see another yen intervention tonight or in the coming days."
However, there is currently no confirmed report of the intervention actions he mentioned having actually taken place. Colombo’s assessment remains a speculation based on market trends.
Gold price is approaching the $3,900 to $4,000 support zone; the key is whether it can hold.
On the technical side, Colombo noted that gold is once again approaching the key support range of $3,900 to $4,000 per ounce. This area provided support for gold prices this summer, followed by a rebound.
He said: "As long as gold prices don't break below this range, I won't be concerned. Until then, it could still be forming a double bottom or a rebound. We can't be certain yet. All we know for now is that gold prices are testing this support level."
He emphasized that it is premature to conclude that the gold trend has weakened. If the price of gold ultimately breaks below the support range, further evaluation should be conducted based on subsequent market movements.
He said, "If gold prices break below support, we'll assess the subsequent movement. I don't want to jump to conclusions. But yes, this movement is indeed very unusual, and it feels like it's dropped too much."
The magnitude of this pullback has been quite significant. Colombo said, "Unfortunately, gold has retraced all of its gains since August, nearly erasing the entire upward rally."
Nevertheless, he believes that the performance of the bond market may have somewhat limited gold’s decline. On Thursday, stronger U.S. Treasury prices and lower yields, according to conventional market logic, should have provided some support for gold.
Colombo explained that if this gold decline was primarily driven by risk-off sentiment triggered by tech stock selling, gold prices could have fallen even further without support from a bond rally. He said:
The decline in yields may actually provide some cushion for precious metals. In other words, if bond yields had risen today, gold prices might already have fallen below $4,000. From this perspective, the drop in yields may be mitigating the pressure on gold.
Global risk assets are under synchronized pressure, and the liquidation effect may still be spreading.
Beyond the North American market, the performance of Asian stock markets offers another possible explanation for the cross-market impact triggered by the sell-off in tech stocks.
Colombo said: "The Asian markets may also be affected, possibly involving similar liquidations. The KOSPI fell sharply, and the Nikkei index also dropped significantly...... Therefore, this explanation is equally plausible."
This means that a sell-off in gold does not necessarily indicate that demand for safe-haven assets has disappeared entirely. Gold may also decline during periods of market turmoil if investors are forced to sell it to meet liquidity needs due to declines in other assets.
At present, Colombo cannot yet determine whether Thursday’s market movement was driven by liquidations triggered by selling in AI-related stocks or potential yen intervention. More immediate focus is on whether gold can hold its support range of $3,900 to $4,000 per ounce, and whether the dollar and U.S. Treasury yields can resume their typical联动 relationship.