Gold Plummets in a Week! "1983 Great Sell-off" Returns, Middle East "Selling Gold to Raise Funds"?

Questioning AI · Behind the Gold Plunge: How Tightening Dollar Liquidity Catalyzes the Sell-Off

Gold experienced its worst weekly decline in 43 years this week, with echoes of history sending chills through the market.

This week, gold’s decline reached its largest weekly drop since March 1983, with spot gold prices falling for eight consecutive trading days—the longest streak since October 2023. Meanwhile, silver fell over 15%, and palladium and platinum also declined simultaneously.

The trigger for this sharp drop was the ongoing escalation of Middle Eastern conflicts, which pushed energy prices higher and suppressed expectations of rate cuts. Market bets on the Federal Reserve raising interest rates by 50% intensified the gold and precious metal sell-off.

What’s more alarming is that the current situation closely resembles the historic collapse in March 1983 caused by large-scale gold sales by Middle Eastern oil-producing countries—when OPEC members, facing a sharp decline in oil revenues, sold off gold reserves for cash, causing gold prices to plummet over a hundred dollars in just a few days.

Notably, data shows that this week’s gold decline is the most severe since the “selling gold to raise funds” storm 43 years ago.

Expectations of Rate Cuts Disintegrate, Gold as a Safe Haven Loses Its Logic

Since the US and Israel launched attacks on Iran last month, gold has fallen for several weeks, contrasting sharply with its traditional role as a safe haven asset.

The reason is that the conflict has not brought easing expectations but inflationary pressures. Market forecasts for the Federal Reserve’s policy path have fundamentally reversed.

Traders now bet that the Fed has a 50% chance of raising rates before October. Elevated energy prices boost inflation expectations, and as gold is a non-yielding asset, its appeal diminishes significantly in an environment of rising real interest rates.

At the same time, signs of tightening dollar liquidity have emerged. Cross-currency basis swaps have widened noticeably this week, indicating some degree of dollar funding stress.

This phenomenon may explain the deeper logic behind gold selling—when dollar liquidity tightens, gold is often one of the first assets investors choose to liquidate.

It’s worth noting that the sharpest declines in metals this week occurred during Asian and European trading hours, consistent with the pattern of offshore dollar shortages first appearing in those markets.

Technical Stop-Loss Triggers, Self-Reinforcing Selling

As prices continue to fall, technical indicators for gold have worsened significantly, with the 14-day Relative Strength Index (RSI) dropping below 30, entering oversold territory in the eyes of some traders.

StoneX Financial analyst Rhona O’Connell pointed out that this round of gold correction results from a combination of profit-taking and liquidity liquidation. She noted that gold had previously attracted substantial buying above $5,200, creating a fragile environment for a correction.

Once prices start to decline, a large number of stop-loss orders are automatically triggered, causing rapid selling that reinforces the downward spiral. Technical signals like moving averages further intensify the downward pressure.

Meanwhile, passive selling triggered by stock market declines has also impacted gold.

O’Connell highlighted that forced liquidations related to stock assets may have dragged down gold prices, while central bank gold purchases slowed and gold ETF outflows continued, further dampening market sentiment. According to Bloomberg, gold ETFs have experienced net outflows for three consecutive weeks, reducing holdings by over 60 tons in total.

The Ghost of the 1983 Middle Eastern “Selling Gold to Raise Funds”

The current situation inevitably reminds market participants of the gold crash triggered 43 years ago by the oil crisis.

Historical records show that around February 21, 1983, UK and Norwegian oil producers led price cuts, forcing OPEC to follow suit, which sharply increased global oil oversupply. Faced with a drastic drop in oil revenues, Middle Eastern oil-producing countries (mainly OPEC members) were forced to sell large amounts of gold reserves to raise cash, triggering a gold price collapse.

The New York Times confirmed this analysis at the time. An article from March 1, 1983, reported that dealers explicitly stated that the gold sales by Middle Eastern oil producers were the direct trigger for the sharp decline in gold prices, warning that further drops in oil revenues could lead these Arab countries to sell more gold. Within less than a week, gold prices plummeted over $105 from their high, with a single-day drop of $42.5—the largest in nearly three years.

According to the NYT, the proceeds from Middle Eastern sales flowed into European dollars and other short-term investments, causing short-term interest rates to soften and sending a warning signal to the global gold market. Since February 21 coincided with the US Presidents Day holiday and the New York market was closed, the impact only fully manifested the following week, triggering a chain of forced liquidations across commodities like copper, grains, soybeans, and sugar.

ZeroHedge notes that the 1983 gold crash marked the beginning of a multi-year bear market in oil—OPEC’s discipline waned, market share continued to erode, and oil prices remained under pressure throughout the 1980s.

Clouds of Stagflation: Can Gold Stabilize?

Despite this week’s heavy losses, gold has still gained about 4% this year. In late January, gold hit nearly $5,600 per ounce, supported by investor enthusiasm, central bank gold buying, and concerns over Trump’s influence on the Federal Reserve’s independence.

However, the macro environment has significantly worsened. According to Bloomberg, Goldman Sachs economist Joseph Briggs expects rising energy prices to drag global GDP down by 0.3 percentage points over the next year and push overall inflation up by 0.5 to 0.6 percentage points. The risk of stagflation is rising, severely constraining central bank policy options.

Goldman analyst Chris Hussey pointed out that the Strait of Hormuz blockade has entered its fourth week, and hopes for a quick resolution are fading. If the conflict persists, the longer oil prices stay high, the harder it will be for the narrative of “short-term pain” to hold in stocks and bonds, exposing further fragility in global assets.

For gold, the key variable will be the trajectory of real interest rates. If the conflict prolongs and inflation expectations continue to rise, the Fed’s rate hike path will become clearer, likely putting continued pressure on gold; conversely, if geopolitical tensions ease, the re-emergence of safe-haven demand remains the biggest market uncertainty.