Author: Dong Jing Gold suffered its worst weekly drop in 43 years this week, a historical echo that sends chills down the spine of the market. This week, gold experiencedAuthor: Dong Jing Gold suffered its worst weekly drop in 43 years this week, a historical echo that sends chills down the spine of the market. This week, gold experienced

Gold prices plummeted for a week, reminiscent of the 1983 sell-off, prompting speculation that the Middle East might be raising funds by selling gold.

2026/03/22 10:30
6 min read
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Author: Dong Jing

Gold suffered its worst weekly drop in 43 years this week, a historical echo that sends chills down the spine of the market.

Gold prices plummeted for a week, reminiscent of the 1983 sell-off, prompting speculation that the Middle East might be raising funds by selling gold.

This week, gold experienced its biggest weekly drop since March 1983, with spot gold prices falling for eight consecutive trading days, the longest losing streak since October 2023. Meanwhile, silver fell by more than 15% this week, while palladium and platinum also declined.

The trigger for this sharp decline was the escalating conflict in the Middle East, which pushed up energy prices and consequently suppressed expectations of interest rate cuts. Market bets on a Federal Reserve rate hike rose to 50%, intensifying this wave of precious metal sell-offs.

What alarms the market even more is that the current situation is highly similar to the historic collapse in March 1983, triggered by a massive sell-off of gold by Middle Eastern oil-producing countries. Back then, OPEC members, whose oil revenues plummeted, were forced to sell their gold reserves for cash, and the price of gold fell by more than $100 within days.

It is worth noting that, according to historical data, this week's drop in gold prices is the most severe since the "gold-selling frenzy" 43 years ago.

The expectation of interest rate cuts has collapsed, and the safe-haven logic for gold has failed.

Gold has fallen for several weeks since the US and Israel launched their attack on Iran last month, a stark contrast to its traditional role as a "safe-haven asset."

The reason is that war brings not expectations of monetary easing, but rather inflationary pressures. Currently, market predictions regarding the Federal Reserve's policy path have undergone a fundamental reversal.

Traders are now betting on a 50% probability of the Federal Reserve raising interest rates before October. High energy prices are driving up inflation expectations, and gold, as a non-interest-bearing asset, is becoming increasingly less attractive in an environment of rising real interest rates.

At the same time, there are signs of tightening dollar liquidity in the market. Cross-currency basis swaps have widened significantly this week, indicating some degree of dollar funding pressure.

This phenomenon may explain the underlying logic behind the sell-off of gold – when dollar liquidity tightens, gold is often one of the assets that investors prioritize liquidating.

It is worth noting that the most dramatic declines in the metals market this week occurred during the Asian and European trading sessions, which is consistent with the pattern that dollar shortage pressures first appear in the offshore market.

Technical stop-loss triggered, selling becomes self-reinforcing.

As gold continues its decline, technical indicators have deteriorated significantly, with the 14-day Relative Strength Index (RSI) falling below 30, entering what some traders consider oversold territory.

StoneX Financial analyst Rhona O'Connell pointed out that this round of gold price correction is the result of both profit-taking and liquidity clearing . She stated that gold prices had previously attracted significant buying interest above $5,200, creating considerable vulnerability for a correction in the market.

At the same time, the passive selling triggered by the stock market decline also affected gold.

O'Connell pointed out that forced liquidations related to equity assets may have dragged down gold prices, while the slowdown in central bank gold purchases and continued outflows from gold ETFs have further dampened market sentiment. According to Bloomberg data, gold ETFs have recorded net outflows for three consecutive weeks, with holdings decreasing by more than 60 tons in total over the three weeks.

The specter of the 1983 Middle East gold-selling frenzy

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

Historical data shows that around February 21, 1983, British and Norwegian oil producers took the lead in lowering prices, putting pressure on OPEC to follow suit and suddenly exacerbating the oversupply situation in the global oil market. Faced with a sharp decline in oil revenues, Middle Eastern oil-producing countries (mainly OPEC members) were forced to sell off large amounts of their gold reserves to raise cash, triggering a collapse in gold prices.

The New York Times' report at the time corroborated this assessment. According to a March 1, 1983 report, traders explicitly stated that the sell-off of gold by Middle Eastern oil-producing countries was the direct trigger for the gold price crash , and warned that these Arab countries might sell even more gold if oil revenues declined further. At that time, gold prices plummeted by more than $105 from their highs in less than a week, with a single-day drop of $42.50, the largest in nearly three years.

According to a report in The New York Times at the time, the proceeds from the Middle East sell-off immediately flowed into Eurodollars and other short-term investment instruments, causing short-term interest rates to soften and sending a warning signal to the global gold market. Because February 21st was a US President's Day holiday and the New York market was closed, the impact did not fully materialize until the following week, subsequently triggering a chain reaction of forced liquidations, also affecting commodity markets such as copper, grains, soybeans, and sugar.

ZeroHedge points out that the gold crash of 1983 marked the beginning of a multi-year bear market cycle in the oil market—OPEC's discipline weakened, its market share continued to decline, and oil prices remained under pressure throughout the 1980s.

With stagflation looming, can gold prices stabilize?

Despite suffering a significant blow this week, gold is still up about 4% year-to-date. Gold prices hit a record high of nearly $5,600 per ounce in late January, supported by investor enthusiasm, central bank gold purchases, and market concerns about Trump's interference in the Federal Reserve's independence.

However, the current macroeconomic environment has deteriorated significantly. According to Bloomberg, Goldman Sachs economist Joseph Briggs predicts that rising energy prices will drag down global GDP by 0.3 percentage points over the next year and push up overall inflation by 0.5 to 0.6 percentage points. The rising risk of stagflation has severely limited the policy space available to central banks.

Goldman Sachs analyst Chris Hussey points out that the Strait of Hormuz blockade has entered its fourth week, and hopes for a quick resolution to the conflict are fading. If the fighting continues, the longer oil prices remain high, the more unsustainable the narrative of "seeing the pain in the short term" will become in the stock and bond markets, further exposing the vulnerability of global assets.

For gold, the trend of real interest rates will be a key variable. If the war drags on and inflation expectations continue to rise, the Fed's interest rate hike path will become clearer, and the pressure on gold may continue. However, if there are signs of easing in the geopolitical situation, whether the suppressed safe-haven demand can be released again remains the biggest suspense in the market.

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