After weeks of soaring to historic highs, gold’s meteoric rise came to an abrupt halt on Tuesday, plunging more than 5% in its steepest one-day drop since 2013. The precious metal, which hit an all-time high of $4,381 per ounce on Monday, fell as much as 6.3% to $4,082 before closing at $4,087.70.

By early Wednesday, gold recovered slightly to trade around $4,141, up 0.4%. Analysts attributed the fall to profit-taking after an overheated rally that had pushed prices more than 50% higher since the start of 2025 – surpassing even the volatility seen after 9/11, the 2008 financial crisis, or the COVID-19 pandemic.

Silver and platinum mirrored the trend, dropping 7% and 5% respectively.

The sell-off comes amid renewed optimism around potential trade talks between the United States and China. Both nations are expected to resume discussions later this week, with a meeting between President Donald Trump and Chinese leader Xi Jinping scheduled for next week. Hints of progress lifted investor sentiment and prompted a rotation away from safe-haven assets such as gold.

“I expect we’ll probably work out a very fair deal with President Xi of China,” Trump said on Monday. “I think we’re going to work out something that’s good.”

The sudden reversal follows a two-month surge of roughly 25%, fuelled by concerns over rising US government debt, political instability, and expectations of interest rate cuts by the Federal Reserve. Analysts say those factors had driven unprecedented demand, creating conditions ripe for correction once traders began cashing in gains.

Another factor behind the dip is the end of the Diwali festival in India – the world’s second-largest consumer of gold – which typically sees strong seasonal buying. With the festival now concluded, physical demand has eased, adding further downward pressure to prices.

Despite the pullback, analysts remain divided on what comes next. Some view the sell-off as a natural pause after months of frenzied buying, while others see signs of a more sustained correction if trade optimism holds and the US dollar continues to strengthen.