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

Gold encounters its worst weekly decline in 43 years, and echoes of history send chills through the market.

This week, gold experienced its largest weekly drop since March 1983, with spot gold prices falling for eight consecutive trading days, marking the longest streak of declines in 2023. Meanwhile, silver fell over 15%, and palladium and platinum also declined in tandem.

The trigger for this sharp plunge 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 in October 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 triggered in March 1983 by large-scale gold sales by Middle Eastern oil producers—when OPEC countries, suffering from a sharp drop in oil revenues, were forced to sell 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.

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, starkly contrasting its traditional role as a safe-haven asset.

The reason is that the war has not brought easing expectations but instead 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.

Meanwhile, 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 often becomes 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 surface first in these markets.

Technical stops trigger, selling self-reinforces

During the ongoing decline, technical indicators for gold have worsened significantly, with the 14-day Relative Strength Index (RSI) dropping below 30, entering what some traders consider oversold territory.

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

Once prices start falling, a large number of stop-loss orders are automatically triggered, causing a rapid sell-off that reinforces itself in a spiral. Technical signals like moving averages further intensify downward pressure.

At the same time, 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, with holdings decreasing 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 decline 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 at the time confirmed this view. 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 fall in gold prices, warning that further declines in oil revenues could lead these Arab countries to sell more gold. Within less than a week, gold prices plummeted over $105 from the high, with a single-day drop of $42.5—the largest in nearly three years.

According to the NYT report, the proceeds from Middle Eastern sales flowed into European dollars and other short-term investments, leading to a softening of 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 manifested the following week, triggering a chain of forced liquidations that also affected copper, grains, soybeans, sugar, and other commodities.

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

Clouds of stagflation, can gold prices stabilize?

Despite the heavy losses this week, gold has still gained about 4% so far this year. In late January, gold reached nearly $5,600 per ounce, driven by investor enthusiasm, central bank gold buying, and concerns over potential US Federal Reserve intervention under Trump.

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 space.

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 fragility in global assets.

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

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