Gold just had its worst day since the pandemic. Where do prices go from here?

While everyone calls gold a 'safe haven', its price action tells a different story. Statistically speaking, a roughly 5% one-day selloff is extremely rare. In a "normal" distribution, moves of −4.7% to −6.0% should occur once every 240,000 trading days. In reality, they've happened 34 times since 1971 across 13,088 trading days, or 0.26% of the time (roughly 1 in 385 days), according to resources investor Alexander Stahel.

After such a massive one-day dip, the question on everyone's mind is: where does gold go from here? While no crystal ball can predict prices with certainty, historical precedents offer some valuable clues.

Previous selloffs

The average, median and percent positive figures are somewhat skewed by the outsized moves gold experienced during the 2006-2008 period. This shows that gold tends to behave like a risk asset during periods of extreme economic turbulence (and bounces back with equal ferocity). If you exclude the 2008 period, the average returns for three, six and twelve months turn negative (down 1.6%, 0.7% and 1.7% respectively).

After a massive win streak

Sideways trade

In 2013, gold was experiencing a sharp pullback following a roughly 155% post-GFC rally. After suffering a 5.5% selloff on 20 July, it traded sideways for around five and a half years.

By July 2018, it finally bottomed and experienced a ~70% rally by July 2020 to fresh all-time highs of US$2,038/oz. After suffering a 5.7% selloff in August 2020, it traded sideways for three and a half years before experiencing the powerful move we've witnessed recently.

Gold prices have more than doubled since the initial breakout in January 2020 and given the above, a period of consolidation wouldn't be surprising.