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Can gold price see quick return to record highs after worst daily sell-off since 2013?

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(Kitco News) The euphoric summer rally came to an abrupt end on Tuesday as gold saw its steepest one-day fall since 2013. And even though the massive price pullback does not mean the rally is over, getting back to gold’s new all-time highs will not be a quick walk in the park, according to Commerzbank. 

“Both precious metals plummeted: gold shed nearly 6% to chalk up its biggest daily loss since the historic sell-off in April 2013. Silver was hit even harder, slumping by almost 15% - its most pronounced decline on a single day of trading since October 2008,” said Commerzbank analyst Carsten Fritsch. “As compared with Friday’s highs, this means a fall of around $200 for gold and of a good $6 for silver.”

It took gold almost seven years to get back to its highs after 2013’s price drop. This time around, the recovery won’t be nearly as slow but a quick turnaround is also ruled out, Fritsch said. 

“We are unlikely to see prices return quickly to the highs they achieved at the end of last week,” he noted on Wednesday. 

However, a key difference this time around is the macro environment, which remains very supportive of higher gold and silver prices. 

“This is all … thanks to negative real interest rates, an unprecedented increase in the money supply and ballooning debt. As Fed Chair Powell made clear at the latest press conference, a debate about rate hikes – which is one of the factors that sparked the sell-off more than seven years ago – is not likely to happen for a very long time,” Fritsch explained. 

Yet, a quick recovery is still not the likely option because Tuesday’s drop caused too much technical damage, the analyst added. “This is already indicated by the outflows from ETFs reported by Bloomberg. Outflows from gold ETFs have now been registered for three days in a row, while silver ETFs saw their biggest daily outflow of the year yesterday,” Fritsch pointed out.

Going forward, a period of price consolidation is likely to follow and last for several weeks. “That would also be a healthy state of affairs following the excessive price surge,” Fritsch said. 

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