On June 24th, the spot price of gold in London fell below the $4000 per ounce mark, hitting its lowest point since early November 2025 and accumulating a year-to-date decline of over 7%. The once-uninterrupted rally in gold has abruptly cooled off, and the ongoing correction has left many investors questioning whether they should continue holding their positions.
Key Drivers of the Recent Decline
The current weakness in gold is the result of multiple bearish factors converging, with the core logics that previously supported the price collectively weakening.
The market's expectation for a Federal Reserve interest rate hike has intensified. Data from the FedWatch tool indicates the probability of a December rate hike is now approximately 86.1%. As a non-yielding asset, rising interest rates directly diminish gold's appeal, driving capital away from gold and towards other higher-yielding assets.
The US Dollar Index has continued to strengthen, rebounding from a previous level around 97 points to near 101 points. Since international gold is priced in US dollars, a stronger dollar directly suppresses the nominal price of gold.
Both safe-haven sentiment and demand for inflation hedging have cooled. Easing geopolitical tensions have reduced market demand for safe-haven assets. Concurrently, a pullback in international crude oil prices has tempered market inflation expectations, diminishing gold's value as an inflation hedge and further eroding support from bullish positions.
Furthermore, following a prolonged period of one-sided gains, gold had accumulated substantial profit-taking positions. During this adjustment phase, a significant number of long positions have been closed for profit, exacerbating the short-term downward pressure on the price.
Assessing the Potential for a Bottom
In our view, short-term uncertainty remains. Thursday's PCE (Personal Consumption Expenditures) data will serve as a crucial indicator. A moderate inflation reading could temporarily alleviate rate hike expectations; conversely, gold prices may continue to face downward pressure.
From a medium- to long-term perspective, the fundamental logic supporting a gold bull market remains intact. Factors such as fiscal deficits, geopolitical tensions, and monetary policy concerns continue to underpin long-term demand for gold. Against a backdrop of monetary expansion and fiscal deficit monetization, the credibility of the US dollar system faces challenges. Additionally, frequent global geopolitical instability is driving the diversification of asset reserves, which continuously boosts demand for gold as a safe-haven asset. Central bank gold purchases remain a significant pillar of support. China accelerated its gold purchases in May, and global central bank demand for gold is showing signs of recovery, indicating that long-term structural support persists. Investors who remain optimistic about gold's medium- to long-term investment value may consider a strategy of accumulating positions on dips, after carefully assessing their own risk tolerance and investment objectives.
Identifying Signals for a Trend Reversal
To gauge whether gold prices are approaching a trend reversal, the following signals may be worth monitoring:
Whether the gold price can stabilize and close above the key resistance level on a daily basis (in the $4400-$4500 range).
Whether US Treasury real yields and the US Dollar Index decline simultaneously.
A shift in the probability of rate hikes/cuts as indicated by CME interest rate futures.
Whether domestic ETF funds experience consecutive days of net subscriptions rather than sporadic, one-off inflows.
Whether global ETF and SPDR holdings, particularly in North America and Asia, transition from reductions to increases.
Important Risk Disclaimer
The views expressed are for reference only and are subject to change with market conditions. They do not constitute investment advice or a promise. The market carries risks, and investment requires caution.
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