After experiencing its steepest decline in years, the gold market is seeing buyers step in at lower levels, providing temporary relief for the three-year bull run. Gold prices have fallen 15% this month, at one point dropping 19% from their January closing peak—approaching the 20% threshold that typically signals the start of a bear market. However, a turnaround emerged on Friday as investors returned, pushing prices up about 3% and restoring some market confidence.
Many market participants maintain that the structural factors supporting gold remain intact. George Efstathopoulos, a portfolio manager at Fidelity International, described the pullback as a "buying opportunity," noting that "inflation risks, fiscal pressures, and concerns over bond credibility continue to serve as long-term tailwinds for gold." Max Layton, Global Head of Commodities Research at Citigroup, expressed a similar view in a Bloomberg TV interview, stating that once speculative positions are cleared, the bank would be "aggressively bullish on gold" and is "confident" prices will be higher a year from now.
The sell-off has been driven by a combination of pressures. The war in Iran triggered widespread selling across stocks, bonds, and currencies, forcing investors to liquidate gold holdings to cover losses elsewhere. At the same time, rising oil prices due to the conflict pushed bond yields higher, reducing the appeal of non-yielding assets like gold. A stronger U.S. dollar also made gold more expensive for buyers using other currencies.
Central banks have also shown signs of shifting behavior. In the two weeks following the outbreak of the Iran war, Turkey sold or swapped over $8 billion in gold to support the lira, dampening market sentiment. Throughout the bull market, central banks have been key buyers of gold. Daniel Ghali, a commodity strategist at TD Securities, suggested that a more likely scenario is a gradual slowdown in central bank gold accumulation rather than a full shift to net selling.
Gold ETFs have borne the brunt of the recent selling pressure. Popular among both retail and institutional investors, gold ETFs had seen net inflows in 13 of the past 14 months, supporting a 70% rise in gold prices over that period. This month, however, ETF flows have reversed sharply and are on track for the largest monthly net outflow since 2022, erasing all gains recorded earlier this year. ETF investors are particularly sensitive to interest rate changes, and the current high-rate environment has been a major headwind.
Hedge funds also joined the selling last week, cutting net long positions in gold to their lowest since October of last year. Still, Robert Minter, Investment Strategy Director of ETFs at Aberdeen Investments, noted that equity market declines typically only trigger modest and short-lived pullbacks in gold.
The bull market, which began in early 2023, has seen gold rise nearly 150% in total. It was initially fueled by central banks accelerating purchases after Russia’s foreign reserves were frozen, followed by hedge funds and eventually retail investors. The core narrative supporting gold in 2025 has been the so-called "currency debasement trade"—the idea that high-debt countries like Japan, France, and the U.S. lack the political will for post-pandemic fiscal discipline, making currency depreciation and inflation inevitable, with precious metals as a primary beneficiary.
Robin Brooks, a former FX strategist at Brevan Howard and Goldman Sachs and now a senior fellow at the Brookings Institution, admitted he has become a "believer" in this logic, citing historical correlations between gold and safe-haven currencies like the Swiss franc. However, the Iran war has temporarily shifted attention away from debt and deficit concerns.
As John Reade, Chief Strategist at the World Gold Council, noted: "People are taking profits because the 2025 narrative for gold has been put on the back burner for now. That doesn’t mean those long-term themes have disappeared—they’re just not the most urgent issue at the moment."
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