Is the "crazy bull" gold market coming to an end? Truist Advisory: A substantial drop in gold prices indicates that the correction will continue.

On Tuesday, gold saw its largest single-day decline of 2020; prior to this, silver also experienced significant selling after a strong rise during the year. Truist Advisory Services strategist noted that the recent drop in gold suggests a pullback, and this trend is expected to continue. Chief Investment Officer and Chief Market Strategist Keith Lerner of Truist Advisory stated, "The sell-off is not triggered by a single factor; instead, the recent uptrend in gold has entered an unsustainable rhythm, making a sharp reversal likely." Gold has risen over 65% so far this year, with further acceleration in the past month. The price is now more than 30% above the 200-day moving average, representing the largest divergence from the trend since 2006. Lerner explained, "It's like a rubber band being stretched too far, and the potential for a significant rebound is high." He emphasized that when market momentum becomes unsustainable, the reversal speed can be very fast. Truist's analysis shows that since the end of the Bretton Woods system in 1971, instances of gold dropping over 5% in a single day have been extremely rare, occurring only 44 times in history. Lerner pointed out that such significant declines typically occur near cyclical turning points or towards the late stages of an uptrend; while short-term rebounds after such drops are common, the long-term trend can present a more complex picture. Truist strategists indicated that the outlook for the next 12 months is particularly challenging. Historical data suggests that after such large single-day declines, the median return on gold over the following year is negative, with only around 40% of cases delivering positive returns. Lerner warned, "These market conditions often indicate fatigue, and there could be a period of consolidation or correction ahead, with significant volatility in the eventual direction." However, he maintained that key long-term bullish trends for gold, including central bank purchases, ongoing geopolitical risks, and concerns about currency devaluation, remain unchanged. The strategist expects the current pullback to continue and advises investors to remain patient while the market digests recent gains. He stated, "Structurally, we remain optimistic as the current uptrend appears to be in the early stages compared to historical cycles." While short-term risk/reward is not favorable, gold still serves as a diversification tool and a safe-haven asset, and for investors not yet invested in the asset, a larger pullback could present a potential entry opportunity.