Gold's long-term bull markets never die from price alone 鈥?they die when fear dissipates.
Thomas Bollinger, senior investment strategist at Swiss private bank Bank J. Safra Sarasin, noted in a recent research report that since the collapse of the Bretton Woods system in 1971, gold has experienced three complete long cycles. Each cycle ended not because problems were solved, but because the market's worst fears were eliminated 鈥?at which point gold's appeal as a "Plan B" rapidly disintegrated and interest rates once again became the dominant pricing factor.
The current gold upcycle began in 2019 and is now in its seventh year, with real gold prices delivering an annualized return of 12.3%. The two pillars driving this cycle 鈥?reduced accessibility of the dollar system due to geopolitical fragmentation, and concerns about inflation dilution stemming from high government debt 鈥?have yet to show any substantive easing. In the conclusion of his research report, Thomas Bollinger explicitly wrote that the end of this cycle "has likely not yet occurred."
Analysis suggests this indicates that gold's value in a multi-asset portfolio does not come from diversification benefits, but from protection against systemic risk. The signal to reduce gold holdings is not a particular price level, but rather the easing of geopolitical tensions, progress in fiscal consolidation, and a return to a negative correlation between gold prices and U.S. real interest rates.
Three Cycles, Same Logic: The Moments When the Monetary System Is Most Doubted
Thomas Bollinger defines a gold cycle as "a period of sustained and significant upward movement in real gold prices (deflated by U.S. headline CPI)," thereby removing inflationary distortion and making cross-cycle comparisons possible.
According to LSEG Datastream monthly data (January 1971 to June 2026), the performance of the three upcycles is as follows:
The first cycle (1971鈥?980): real gold price annualized return of 24.5%, annualized volatility of 28.8%, maximum drawdown of -49.7%;
The second cycle (2001鈥?012): real gold price annualized return of 15.4%, annualized volatility of 17.4%, maximum drawdown of -26.4%;
The third cycle (2019 to present): real gold price annualized return of 12.3%, annualized volatility of 16.5%, maximum drawdown of -28.1%.
By comparison, the two down periods delivered annualized returns of -7.7% (1980鈥?001) and -6.4% (2012鈥?018), respectively. The full-period annualized return since 1971 is only 5.0%, with a maximum drawdown of -82.4%, fully demonstrating that the returns from long-term gold holding are highly dependent on the cycle stage in which one is positioned.
The report states that the three upcycles occurred under starkly different economic and geopolitical backgrounds, yet shared the same underlying logic: they all emerged at moments when the global monetary and financial system was most questioned. The core question of the first cycle was "whether the dollar could continue to serve as the anchor currency"; the second was "the stability of the monetary and financial system after the financial crisis"; and the third is "the neutrality of the anchor currency" and "the sustainability of sovereign debt."
How Cycles End: Fear Dissipates, Not Problems Resolved
Bank J. Safra Sarasin believes that understanding the mechanism by which gold bull markets end is more practically meaningful than predicting price tops.
The end of 1980: Federal Reserve Chairman Paul Volcker fought inflation with aggressive rate hikes, and the market realized that the hyperinflation spiral would not spiral out of control, eliminating the worst fears about the monetary system.
The end of 2012: Although the U.S. congressional debt ceiling dispute led to a downgrade of the AAA rating and triggered panic over a technical default, the U.S. ultimately did not default; meanwhile, the eurozone introduced large-scale rescue measures during the sovereign debt crisis and completed Greece's debt restructuring, removing the risk of eurozone breakup.
Thomas Bollinger emphasized that neither ending meant the underlying problems were solved 鈥?in 1980 the U.S. fiscal position was not consolidated, and in 2012 the eurozone's structural problems remained. The key point is that once the market's worst fears were eliminated, gold's appeal as a "Plan B" rapidly declined, the pricing factor switched from "fear" back to "interest rates," and a downcycle promptly began.
The report also notes that near cycle tops, a dramatic "blow-off top" often occurs. Prices are pushed to extreme levels amid panic sentiment, then rapidly fall back once concerns dissipate, but gold prices typically approach previous highs once more before finally entering a downtrend 鈥?this is because the market needs time to confirm whether the relevant measures are sufficient to contain structural problems. Once this becomes market consensus, the dominant pricing factor switches from fear back to interest rates, and the downtrend officially begins.
The 2022 Decoupling: This Cycle's Pricing Logic Has Already Changed
Between 2012 and 2022, gold prices maintained a stable negative correlation with U.S. real interest rates 鈥?when real rates rose, gold prices came under pressure; when real rates fell, gold benefited. The negative real rate environment during the COVID-19 pandemic provided a significant boost to gold.
However, this relationship suddenly broke down in 2022. The Federal Reserve's aggressive rate hikes pushed real rates rapidly higher, and according to historical patterns, gold prices should have come under pressure 鈥?but the actual trajectory was the exact opposite.
Thomas Bollinger pointed out that the cause of this decoupling was not monetary, but geopolitical. After the outbreak of the Russia-Ukraine conflict, the West imposed large-scale sanctions on Russia, Russia's central bank reserves were frozen and partially confiscated, Russia was excluded from the SWIFT system, and its access to the dollar system was severely restricted.
This series of events had far-reaching implications: gold's dominant function shifted back toward a store of value and has become the second-largest reserve asset after the dollar. The trend of central bank gold purchases began as early as the 2010s and has accelerated markedly in recent years. At the same time, the high government debt accumulated during the financial crisis, the European debt crisis, and the pandemic has led many investors to worry that the real debt burden will be diluted through inflation, creating structural demand from private investors, institutional investors, and central banks.
The report also notes that physical gold has continued to flow from west to east over the years, and China is establishing exchange and warehousing infrastructure in multiple countries, further strengthening gold's strategic position in parallel settlement systems.
Portfolio Allocation: Gold's Value Lies in Systemic Protection, Not Diversification
Thomas Bollinger conducted a quantitative analysis in his research report on gold's role in a multi-asset portfolio, and the conclusions differ importantly from conventional market wisdom.
The report uses a 50/50 U.S. Treasury and U.S. equity balanced portfolio as a benchmark, compared with a 40/40/20 portfolio that adds 20% gold (the report explicitly states this is not a recommended allocation, but an illustrative ratio set to clearly demonstrate the effect).
Key finding: Gold's correlation with the 50/50 balanced portfolio is close to zero over the long term, but during the two completed upcycles (1971鈥?980 and 2001鈥?012), adding gold did not significantly reduce portfolio volatility. This means that gold's contribution to a portfolio is not about diversification in the general sense, but about providing targeted protection during periods of systemic risk exposure 鈥?protection that is especially valuable during upcycles.
The report also notes that the excess returns of gold-inclusive portfolios in the current cycle are already at historically high levels, while current market valuations are relatively elevated, meaning expected returns over the coming years may be lower than those realized so far in this cycle. Investors should maintain sober expectations about this.
Three Verification Conditions: When to Reduce Gold Holdings
Thomas Bollinger provided three observable conditions in his research report for judging whether this cycle is nearing its end, and set specific verification windows:
鈶?Whether geopolitical fragmentation shows substantive easing. Core observation points include: whether sanctions on Russia are relaxed, whether frozen central bank reserves are released, and whether the parallel settlement system shows substantive retreat. The verification window is policy developments related to sanctions and settlement arrangements from Q4 2026 to H1 2027.
鈶?Whether government debt concerns are eliminated by policy. Core observation points include: whether major economies advance fiscal consolidation, or whether inflation falls to a level where the real debt burden no longer worries the market. The verification window is major economies' fiscal budgets and inflation data in 2027.
鈶??Whether gold prices and U.S. real interest rates return to a negative correlation. This is the most direct mechanistic signal. If the two once again exhibit a negative correlation, it means the pricing factor has switched from "fear" back to "interest rates," and the signal that this cycle is entering a downtrend will be officially triggered. The verification window is monthly continuous observation starting from Q4 2026.
Thomas Bollinger explicitly stated in the conclusion of his research report that none of the above conditions are currently met, and the end of this gold cycle "has likely not yet occurred." For investors holding gold positions, the key is not to fixate on price, but to continuously track the evolution of these three conditions 鈥?once the market's worst fears are eliminated, historical experience shows that gold will rapidly lose its appeal as a "Plan B."
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