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Frik Els

After spiking to a near six-year high when news of an Iranian missile attack on a US base in Iraq first broke, the price of gold plummeted on Wednesday.

Wednesday was one of the worst trading sessions in dollar terms in gold market history with the gold price dropping to $1,553.40 an ounce in afternoon trade – down 3.7% or $59.90 an ounce from the high hit in after hours trade on Tuesday.

Gold came under heavy selling, with the volume of contracts on the Comex market in New York for February delivery gold traded reaching the equivalent of 78.7m troy ounces by late afternoon (vs annual global gold production of ~100m ounces). That’s roughly $124 billion worth of gold traded in a single session.

Wednesday was one of the worst trading sessions in dollar terms in gold market history

Gold’s pullback came after tensions between the US and Iran were calmed somewhat by US President Trump when he said the Middle Eastern country “appears to be standing down, which is a good thing for all parties concerned and a very good thing for the world.” Trump spoke after it became apparent that Iran was careful to avoid US casualties in its retaliation for the US killing of the country’s top general.

History suggests that gains driven by geopolitical tensions alone are usually short-lived, Macquarie Group strategists including Marcus Garvey said in a report quoted by Bloomberg yesterday:

“To illustrate this with the examples of Gulf War 1, the World Trade Center attack of 9/11 and last year’s strike on Saudi Aramco’s Abqaiq facility, gold prices initially jumped higher but were ultimately unable to sustain their newly elevated level,” they said.

Volatility

The gold futures market has been quiet in recent years, but today’s fallback is in dollar terms the biggest fall in the price since 2013 when gold was trading at today’s levels in the mid-$1,500s.

Gold ended the day on April 15, 2013 over $87 below the previous closing – and never recovered on its way to $1,050 an ounce three years later. On that day, 10 million ounces traded within 30 minutes described as a “shock and awe” trading strategy by a short seller.

Gold hit a record $1,909 an ounce intra-day on 23 August 2011, but the next day suffered one of its few triple digit one-day losses when it plummeted $105, ending the week down more than 10% from the all-time high.

Adjusted for inflation, gold’s highest price point ever was on January 21, 1980 when the precious metal hit $850 only to plunge the very next day to $737.50, a 13% fall.

The biggest fall in percentage terms came in February 1983, when the yellow metal fell from $475 to $408.50 over two days, a 14% decline.