Gold prices plunged again during the session, and holdings of gold ETFs reached their highest level since 2022.

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As gold prices suffered their biggest single-day plunge since 2013, the amount of physically-backed gold ETFs held by investors climbed to the highest level in three years.

According to global data compiled by Bloomberg, as of Tuesday, the total gold ETF holdings rose to 98.9 million ounces, the highest since September 16, 2022.

On Tuesday this week, gold prices plunged by as much as 6.3%, marking the largest single-day drop since 2013, as markets grew concerned that the previous rally had been too fast and too strong. Gold prices continued to fall on Wednesday, and as of around 11:40 PM Beijing time, spot gold was down about 2.2% on the day, though the loss later narrowed.

Despite the recent decline, gold prices have still risen more than 50% so far this year. This is partly due to a large influx of retail investors into physically-backed ETFs, which have become a popular way for them to gain exposure to gold.

Some analysts have noted that the recent gold rally is fundamentally different from the situation at the beginning of the year. Central banks did not participate in the gold rally since September. From a trading session perspective, April’s surge in gold mainly took place during Asian trading hours, while the current rally has mostly happened during European and U.S. sessions, with Asia mainly following. This indicates that the relatively stable buying power of central banks has not been involved.

What is more concerning is that the recent gold rally has been accompanied by a significant expansion in ETF holdings, which is also in stark contrast to trading activity at the start of the year. ETF funds are typically fast in and fast out, often leading to sharp market swings. In addition, the implied volatility of gold ETFs has surged, and historical experience shows this usually occurs at short-term turning points and when trends are exhausted.

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