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

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

This week, gold prices saw their largest weekly drop since March 1983, with spot gold falling for eight consecutive trading days, marking the longest losing streak since October 2023. Meanwhile, silver dropped over 15%, and palladium and platinum also declined in tandem.

The trigger for this sharp sell-off was the escalating Middle East conflict, which pushed energy prices higher and suppressed expectations of rate cuts. Market bets on the Federal Reserve raising interest rates increased to 50%, intensifying the wave of selling in precious metals.

What’s more alarming is that the current situation closely resembles the historic crash in March 1983, caused by large-scale gold sales by Middle Eastern oil-producing countries amid rising tensions. Back then, OPEC members, facing a sharp decline in oil revenues, sold off gold reserves to raise cash, causing gold prices to plummet over a hundred dollars within days.

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

Rate hike expectations collapse, gold’s safe-haven logic fails

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 there’s a 50% chance the Fed will raise rates before October. Elevated energy prices boost inflation expectations, and as gold is a non-yielding asset, its appeal diminishes 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 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 most intense declines in metals this week occurred during Asian and European trading hours, consistent with the pattern that offshore dollar shortages tend to appear first in those markets.

Technical stops trigger, selling self-reinforces

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 according to some traders.

StoneX Financial analyst Rhona O’Connell pointed out that this correction is driven by 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 cascade of stop-loss orders is triggered automatically, rapidly forming a self-reinforcing downward spiral. Moving averages and other technical signals further intensify the downside pressure.

Meanwhile, declines in the stock market have also led to forced selling in gold.

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

The ghost of the 1983 Middle East “selling gold to raise funds”

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

Historical records show that around February 21, 1983, UK and Norwegian oil producers led a price cut, forcing OPEC to follow suit, which sharply increased global oil oversupply. Facing 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, causing a gold price collapse.

The New York Times confirmed this view. On March 1, 1983, it reported that traders identified the Middle Eastern countries’ gold sales as the direct trigger for the crash, warning that further declines in oil revenues could lead to more gold sales. Within less than a week, gold prices plummeted over $105 from their highs, with a single-day drop of $42.50—the largest in nearly three years.

The report also noted that the proceeds from Middle Eastern sales flowed into European dollars and other short-term investments, softening short-term interest rates 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 materialized the following week, triggering a chain of forced liquidations across commodities like copper, grains, soybeans, and sugar.

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

Stagflation clouds, can gold stabilize?

Despite the heavy losses this week, gold has still gained about 4% this year. In late January, gold prices reached 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 noted 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 more difficult it will be for the narrative of “short-term pain, long-term gain” to hold in stocks and bonds, exposing further vulnerabilities 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, putting continued pressure on gold. Conversely, if geopolitical tensions ease and safe-haven demand is reactivated, the market’s biggest question remains whether the suppressed demand for safety can be reignited.