Stocks Stop, Gold Drops: What's Really Moving Markets?
Stocks Stop, Gold Drops: What's Really Moving Markets?
By:Ilya Spivak
Stocks hit the brakes on a brisk rebound as gold suffered its worst drop in five years. What’s going on?
- A forceful rebound on Wall Street ran out of gas after just one day
- Gold prices plunged, suffering the worst one-day drop in five years
- There might be little more to price action than speculative churn
Stock markets seemed to hit a wall after storming higher at the start of the trading week. Momentum seemed to suddenly evaporate, with the bellwether S&P 500 inching down 0.04% while the tech-tilted Nasdaq 100 lost 0.18%. Both benchmarks stalled after recovering to within a hair of record highs, erasing the brutal October 10 selloff.
The pause seems to lend some credence to the idea that the boisterous rally at the start of the week was mostly about pre-positioning ahead of a handful of key earnings reports. Wall Street had enough gas for a reset after fretting about US-China trade war escalation for a week, then stalled as the third-quarter report from Netflix (NFLX) approached.
Stock markets hit a wall after surging higher to start the trading week
The price action suggests that the rally was about the markets being unwilling to embrace a risk-off tilt before the tech sector darlings that have powered them unveil the latest batch of results, and needing to rebalance exposure, rather than a full-throated embrace of a risk-on stance. As it happens, Netflix shares fell after hours after earnings disappointed.
The lack of a clear lead on sentiment trends was no barrier to explosive volatility in gold prices. The metal plunged 5.32%, posting its biggest one-day loss in over five years. The US dollar and Treasury bonds traded higher on the day, making for a tempting narrative suggesting that the so-called “debasement” trade had gone into reverse.
That might be a compelling read were it not also the case that bonds and the greenback have been trending higher alongside gold since the second half of September. This casts doubt on the “debasement” story itself, never mind its abandonment.
Gold prices may keep falling after the worst drop in five years
An explanation linked to Federal Reserve monetary policy – historically, a standby catalyst for bullion – also seems implausible. The rise in Treasury bonds and the parallel decline in yields are typically supportive of non-interest-bearing precious metals. That clearly did not work in this case.
In fact, Fed policy bets have been remarkably stable recently amid a lull in official economic data flow during the ongoing US government shutdown. Two 25-basis-point (bps) rate cuts are firmly priced in for this year’s remaining policy meetings this month and in December.
At the same time, the markets have shown no urgency to reconcile the disconnect in the markets’ outlook for 2026, and that of the central bank. Traders have priced in 72bps in rate cuts for next year, while Fed officials penciled in just 25bps in stimulus into the latest Summary of Economic Projections (SEP) updated last month.
That leaves simple profit-taking. Gold has enjoyed a blistering nine weeks of consecutive gains that brought it to a record high. Tellingly, the last time it managed such a feat was just over five years ago, and that rally ended in a one-day nosedive just like this one. It lost another 12.3% over the next five months before bottoming.
Ilya Spivak, tastylive head of global macro, has 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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