May's precious metals market is delivering a performance that has kept countless investors awake at night. In early Asian trading on May 18, spot gold in London fell below $4,500 per ounce, hitting a low of $4,480.01, marking its first drop below this level since late March and declining over 1% on the day, following four consecutive sessions of losses. On the same day, COMEX gold futures also fell over 1.5%, breaching the $4,500 mark. As of Wednesday, May 20, spot gold continued its downward pressure, probing near $4,470, reaching its lowest point since March 30. Notably, the current price is down approximately 20% from its recent historic high near $5,600—by the technical definition of a bear market as a decline of over 20% from a peak, gold has touched the bull-bear dividing line.
Anyone who has experienced several market cycles understands: $4,500 is not merely a price number. It was a crucial technical defense zone in the previous uptrend and represents the last psychological stronghold for bulls. Once this support is effectively breached, the chain reaction in market sentiment often proves more perilous than the fundamentals themselves.
At this moment, we need to calmly do one thing: look back at history. Extending the timeline reveals that gold has experienced five significant declines over the past century, each exceeding 20%. The most severe drop occurred between 1980 and 1982. When then-Fed Chairman Paul Volcker raised the federal funds rate to 20% to combat double-digit inflation, gold, as a non-yielding asset, fell out of favor overnight. The London gold price plummeted 65% in just a year and a half—a pullback magnitude that stands as a textbook case of a tightening shock in financial history.
Another memorable period was 2011 to 2015. After the Fed signaled the tapering of quantitative easing in 2013, market expectations for rising rates and a stronger dollar led to massive redemptions of gold ETFs, totaling around $40 billion, initiating a four-year downtrend with a maximum drawdown of 45%. More recently, in 2022, the Fed's seven rate hikes totaling 425 basis points post-pandemic, coupled with the dollar index breaking above 114 to a 20-year high, drove gold down about 22% that year.
Does this feel familiar? Reviewing these five crashes reveals an exceptionally stable pattern: every significant gold decline has, unsurprisingly, seen the dollar on the opposite side. High interest rates enhance the appeal of dollar-denominated assets, while gold yields none; a strong dollar further suppresses the price of gold priced in dollars. In the simplest terms, "high rates + strong dollar = a double whammy for gold."
This time, history appears to be in a similar position. The immediate catalyst for this gold decline is not complicated. The U.S. April CPI rose 3.8% year-on-year, exceeding market forecasts, while PPI surged 6%, marking the largest monthly increase in nearly two years. Market sentiment swiftly reversed—according to the CME FedWatch Tool, the market has begun pricing in a probability exceeding 55% for the Fed to hike rates by 25 basis points or more again in 2026, a probability that was nearly zero before. In the deep waters of this inflation battle, a new, non-negligible variable emerged: Kevin Warsh officially assumed the role of the 17th Fed Chairman on May 13. Industry analysis suggests Warsh has lower tolerance for using the central bank to provide implicit market support, leading to expectations that Treasury yields will remain elevated, further amplifying gold's selling pressure.
Particularly intriguing is the strange divergence between geopolitical risk and gold price movements. Continued tensions in Iran and disruptions to transit through the Strait of Hormuz, threatening about 20% of global oil supply, sent Brent crude soaring to $120 per barrel. According to the textbook, one buys gold in turbulent times; geopolitical crises should boost safe-haven demand—yet this time, gold fell instead of rising. A Morgan Stanley research report in early May pinpointed this logical shift: the importance of monetary policy and real interest rates for gold pricing has now surpassed geopolitical events themselves. Gold is no longer playing its traditional "fear trade" role but is increasingly behaving like a "rate-sensitive asset." In other words, what drives this market is bond yield pricing logic, not headlines.
Faced with such a significant decline, Wall Street's divisions naturally reached a peak. Bears argue that U.S. economic resilience exceeds expectations, the high-rate environment will persist, the key $4,500 support has now turned into significant resistance, and gold may have further downside potential in the near term. While Morgan Stanley maintains a year-end target of $5,200, it candidly acknowledges that the U.S.-Iran conflict exposed the fragile nature of gold as a real rates trade, with ETFs and central banks pausing purchases or even turning to selling after the conflict erupted. The temporary absence of structural buying exacerbated the sell-off.
However, the bull camp also has substantial arguments. "New Bond King" Jeffrey Gundlach explicitly stated he would be a "big buyer" if gold fell below $3,500, believing that a 25% allocation to gold in an asset portfolio is "not excessive." Deutsche Bank firmly maintains a $6,000 target, viewing the current correction as merely a minor fluctuation within a larger trend.
Beneath the surface of volatile market sentiment, a fundamental fact overlooked by many retail investors is quietly at play. Precisely in April, during gold's consecutive declines, the People's Bank of China increased its gold reserves by 260,000 ounces, marking the highest monthly addition in nearly 14 months. This represents the 18th consecutive month of accumulation, totaling over 300 tons over the period, setting a historical record for the longest continuous buying streak. Moreover, the pace of accumulation has intensified month by month—from 30,000 ounces in February, to 160,000 in March, and further to 260,000 in April, buying more as prices fell. The World Gold Council's Q1 report showed global central banks collectively purchased a net 244 tons of gold, a 17% increase quarter-on-quarter, significantly exceeding the five-year average.
Many ask: Do central banks care about short-term gold price fluctuations? The answer is no. The priority for central bank gold purchases has never been short-term returns but rather safety, liquidity, and the "insurance" function of reserve assets. Against the macro backdrop of ongoing dilution of dollar credit, accumulating geopolitical risks, and the reality of frozen sovereign assets, the underlying drivers for central bank gold allocation have not vanished due to price volatility.
Thus, we return to the core question: Is this decline a deep shakeout within a bull market, or the beginning of another multi-year bear market? In the short term, gold may have further room to fall. The 10-year Treasury yield is near 4.65%, the 30-year yield has surged to 5.20%, a near 19-year high, and the dollar index remains at a six-week high. Macro tightening expectations are unlikely to be fundamentally reversed soon. The 200-day moving average, around $4,363, represents the most critical medium-to-long-term support zone currently.
However, for the medium to long term, three underlying logics warrant careful consideration: the global central bank gold-buying trend is unlikely to reverse due to short-term price fluctuations; the fragility of U.S. fiscal policy will constrain the scope for monetary policy tightening; and the ongoing loosening of the petrodollar system is transforming reserve diversification from a slogan into reality. In this sense, this 20% deep correction resembles a forced clearing of liquidity premiums and safe-haven froth—the price is shedding speculative excess, not its fundamental framework.
For ordinary investors, the most important task now is not chasing price movements but calmly asking three questions: Is your allocation logic based on short-term speculation or long-term holding? How much price volatility can you withstand? Can you distinguish between a "correction within a bull market" and a "fundamental trend reversal"?
Behind every major gold decline lies a tug-of-war between bulls and bears. While the current $4,500 level is undoubtedly stark, in the long river of history, it may prove to be just an overtraded psychological threshold. From Volcker's hikes in 1980, to the QE taper in 2013, and up to today, gold's most faithful buyers—the world's central banks—have remained steadfast. This fact itself is more worthy of contemplation than any short-term market movement.
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