In January 2026, the price of gold approached its historical high of around $5,600 per ounce before retreating. As of this Thursday, it is quoted at $4,473, representing a decline of approximately 20%. This performance has led to divergent market interpretations: it could be viewed as a failure to sustain momentum and a sign of weakness, or as a relatively modest correction compared to historical cycles.
Looking back at the price trajectory over the past two decades, significant rallies have typically been followed by substantial pullbacks. After falling to $697.45 per ounce in October 2008, gold subsequently surged by 170% to reach $1,884.40 by September 2011. However, it then declined by 37%, dropping to $1,191.35 by August 2018.
A similar pattern repeated itself later. Following the 2018 low, gold prices increased by 74% to reach $2,072.49 in August 2020, only to then correct by 22%, falling to $1,620.20 by September 2022. Overall, the greater the preceding rally, the deeper the subsequent correction tends to be, with the upward phases generally occurring more rapidly than the downward ones.
Since the low in September 2022, the price of gold has cumulatively risen by 245%, reaching a new peak in January 2026.
Patterns Point to Potential Deeper Correction
Based on the patterns of previous rebounds and declines, it seems plausible that a more significant drop could occur in the coming months or even years before gold's upward trend resumes. There is a clear risk in asserting that "this time is different," as markets are replete with examples where such thinking ultimately proved incorrect.
Shifting Demand and Weakening Supports
The multiple forces that previously drove gold prices higher are now undergoing change.
The recent rally had been attributed to three main factors: sustained gold purchases by central banks, robust demand from the major consumer markets of China and India, and safe-haven demand fueled by inflation, geopolitical risks, and uncertainty surrounding the US dollar's status.
However, these supports are weakening. According to World Gold Council data, global central bank gold purchases in the first quarter of 2026 totaled 243.7 tonnes, a mere 3% increase year-on-year. Since the beginning of 2025, quarterly purchases have largely hovered around 200 tonnes, significantly below the elevated levels seen from mid-2022 through the end of 2024—a period during which five quarters exceeded 300 tonnes.
Consumer demand is also cooling. China's first-quarter gold jewelry demand was 85.2 tonnes, down 31% year-on-year, while India's fell 19% to 66.1 tonnes. Global jewelry demand overall decreased by 25% to 260.2 tonnes. Elevated gold prices are considered a key factor suppressing consumption, and the Indian government's increase in gold import duties is also aimed at curbing demand to alleviate balance of payments pressures.
Investment demand has also contracted. Gold ETFs saw net inflows of 62 tonnes in Q1 2026, a 73% decrease from the same period last year. Overall, total global gold demand for the quarter was 1,195.9 tonnes, a 9% decline from the 1,315.6 tonnes recorded in Q1 2025.
Pricing Logic Shifts to Interest Rate Expectations
Against the backdrop of generally weakening demand, the current driving mechanism for gold prices is changing. The influencing factors for the market have shifted from traditional supply-demand and safe-haven logic to expectations regarding the path of monetary policy.
This shift is reflected in the recent inverse correlation observed between gold and crude oil prices. When US-Iran tensions pushed oil prices higher, gold declined; conversely, as expectations for a peace agreement grew and oil prices retreated, gold found support.
Behind this linkage lies the transmission effect of oil prices on US interest rate expectations. Rising oil prices reinforce expectations for interest rate hikes while diminishing the scope for rate cuts, putting pressure on gold, which yields no interest. Conversely, falling oil prices increase the likelihood of rate cuts, which benefits gold.
Under this mechanism, the direction of gold prices depends heavily on changes in macroeconomic policy expectations and is significantly influenced by geopolitical developments, particularly the progress of conflicts related to Iran.
Ultimately, this renders gold, like other assets, a "hostage" to the developments in the Iran war situation.
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