Gold prices have fallen back below the $4,000 mark, with institutional funds accelerating their exit and retail consumers adopting a wait-and-see approach.
On June 25th, the main Shanghai gold futures contract dropped 2.8% to 872 yuan per gram, hitting its lowest level since late September of last year, with an intraday low of 868.34 yuan. Shanghai silver futures also plunged to a near six-month low, closing down 7.28% at 13,811 yuan per kilogram. Platinum and palladium hit new record lows, with platinum futures falling 5.47% to 385.15 yuan per gram and palladium futures dropping 5.78% to 277.15 yuan per gram, indicating broad pressure across the precious metals sector.
Overnight, the spot price of London gold broke below the key $4,000 per ounce level, touching a low of $3,958, marking the first time since November 2025 and representing a nearly 30% pullback from the historical peak of $5,598 reached earlier in the year. Silver fell even more sharply, dropping below $60 per ounce, which is roughly half its all-time high from January. As of around 17:30 Beijing time on the 25th, London spot gold was trading near $3,994 per ounce, while London spot silver was around $57.6 per ounce.
The rapid decline from $5,600 to $4,000 in less than half a year has reignited a fierce market debate: does this mark the end of the long-term bull market, or is it merely a painful phase of a deep correction?
An analysis from a senior investment strategist points to U.S. inflation and the resulting interest rate hike expectations as the core drivers behind gold's decline. The strategist noted that while inflation data appears moderate, tail risks such as rising capital expenditures and debt expansion are accumulating, prompting central banks globally to adopt preemptive, defensive rate hikes, thereby creating sustained pressure on non-yielding assets like gold.
A precious metals trader added that while geopolitical tensions in the Middle East remain volatile and concerns over U.S. inflation and risk assets persist, traditional supportive logic for gold has been overridden in this cycle, with capital flow favoring the U.S. dollar. The market's focus now shifts to whether signals of a U.S. economic slowdown will materialize.
Institutional Sentiment Turns Negative Amid Headwinds
On the macroeconomic front, a strengthening U.S. dollar index breaking above the key 101 level, hawkish signals from the new Federal Reserve Chair's first FOMC meeting reigniting rate hike expectations, and rising U.S. Treasury yields have collectively weighed on gold.
A UBS strategist highlighted in a report that the combination of rising Treasury yields and persistent Fed rate hike expectations has placed significant pressure on gold, substantially increasing its downside risk and making the duration of the current consolidation phase highly uncertain.
Major international investment banks have collectively shifted their stance, moving from firm bullishness to a series of downward revisions. Goldman Sachs has significantly lowered its year-end 2026 gold price target to $4,900 per ounce, a reduction of $500.
Bank of America stated in a recent report that its earlier $6,000 per ounce price target now appears virtually unattainable.
Previously staunchly bullish, Deutsche Bank has also pivoted, forecasting an average gold price of $4,300 per ounce for the third quarter, a cut of over 22% from prior estimates, and $4,800 for the fourth quarter, down approximately 17%. A Deutsche Bank research analyst attributed this revision to a market repricing of the Fed's policy path, resilient U.S. economic data, and a clear cooling in gold demand, leading to an overall 20% reduction in price forecasts for the second half of 2026.
Earlier, institutions including Citigroup, Morgan Stanley, and ANZ had already lowered their gold price expectations.
Citigroup reduced its three-month gold target from $4,300 to $4,000 per ounce. JPMorgan Chase cut its 2026 average gold price forecast from $5,708 to $5,243 per ounce.
Some institutions maintain their bullish outlook. BMO, in its Q3 commodity outlook, lowered its H2 2026 average gold price forecast by 5% to $4,625 per ounce but maintained its expectation for gold to break above $5,000 per ounce in Q1 2027. The bank argues that while Fed messaging has triggered significant position adjustments and short-term pressure may persist, gold will continue to benefit from the "de-dollarization" theme, with the precious metals sector regaining momentum as macro uncertainties stabilize.
Hot Money Exits as Physical Demand Waits
On the capital flow front, gold ETFs are experiencing substantial outflows. In the domestic market, as of June 25th, seven gold ETFs tracking SGE Gold 9999 have seen their total assets shrink by 36.2 billion yuan over the past three months, with net redemptions accounting for 13.8 billion yuan of that decline.
Specifically, the largest fund, Huaan Gold ETF, saw the most significant change, with assets under management shrinking by 17 billion yuan in the past month. This was followed by Bosera Gold ETF, E Fund Gold ETF, and Guotai Gold ETF, all of which saw their assets shrink by over 5.9 billion yuan in the same period.
Globally, according to the World Gold Council, physical gold ETFs saw net outflows of approximately $2 billion in May. Total global gold ETF assets under management fell 2% month-on-month to $604 billion, while total holdings dipped 0.4% to 4,121 tonnes.
Morgan Stanley noted that the primary driver of the recent gold rally was ETF fund inflows. Without a significant recovery in such inflows, achieving a bullish target of $5,200 per ounce in the second half of the year would become considerably more difficult.
In the futures market, a clear reversal in long/short positioning has not yet occurred. Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that for the week ending June 16th, COMEX gold speculative net long positions increased by 9,258 contracts to 112,918, while COMEX silver speculative net long positions rose by 2,275 contracts to 12,070.
From a market psychology perspective, the breach of the $4,000 per ounce level is highly symbolic. The precious metals trader mentioned earlier stated that for trend-following capital, once such a key level is broken, the typical reaction is to first reduce positions and await confirmation. Capital that chased the rally at higher levels is now hesitant. If the price fails to reclaim this level promptly, $4,000 could transform from a psychological support into a new resistance level, capping any potential rebound.
On the consumer side, jewelry prices continue to adjust. Major brands like Chow Tai Fook and Chow Tai Sang are quoting pure gold jewelry at 1,222 yuan per gram, down nearly 500 yuan from the peak earlier this year. However, driven by a "buy high, not low" mentality, retail outlets have not seen a surge in panic buying, with consumers exhibiting strong wait-and-see sentiment.
Nevertheless, some analysts suggest that the "sharp decline" in gold prices may activate pent-up consumer demand that was previously suppressed by high prices, particularly for wedding-related necessities and gifting purposes.
Looking ahead, the trading narrative for precious metals is expected to continue revolving around the volatility of Middle East geopolitical conflicts, uncertainty surrounding the Federal Reserve's monetary policy path, and risks of global economic stagflation and financial market systemic stress. In the longer term, the most solid support for gold prices is still seen as stemming from sustained gold-buying demand by central banks worldwide.
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