Sprott Managing Partner and Market Strategist Paul Wong noted that spot gold experienced a deep correction in June 2026, falling nearly 12% in a single month, marking its largest monthly decline since October 2008.
While this sell-off appears to have been driven by a stronger US dollar and heightened expectations for Federal Reserve interest rate hikes, it reflects a core paradox. Although short-term dollar strength pressures the gold price, the long-term weakening of the dollar's dominance, combined with the trend toward global reserve diversification, will further solidify gold's long-term allocation value. The short-term correction does not alter the long-term bullish outlook for gold.
Multiple Factors Converge, Triggering a Deep Gold Price Correction
In a monthly analysis, Paul Wong pointed out that the gold price fell by $532.24 per ounce in June, closing the month at $4,008. This marked the fourth consecutive monthly decline, with a second-quarter drop of 14.14%, representing the worst quarterly performance since Q2 2013. He stated that this decline stemmed from two waves of selling. The first was triggered by rising oil prices and a stronger dollar. The second wave was driven by the market's hawkish interpretation of new Fed Chair Kevin Warsh's comments at the June FOMC meeting, which was his first policy meeting since taking office.
Rising rate hike expectations pushed up short-term US Treasury yields, further boosting the dollar, leading quantitative trading firms to deem this negative for gold. Additionally, investment funds had begun unwinding highly leveraged gold positions from March to May. Weak macro data in June, sovereign institutions scaling back gold purchases, and reductions by quantitative and algorithmic funds collectively triggered the sharp decline. However, Wong added that the drop in gold far exceeded the actual moves in the dollar and interest rates, suggesting the market has largely priced in the potential headwinds of high rates and a strong dollar.
Fed Policy Divisions, Sticky Inflation as Core Variable
A core question for the market currently is whether Fed Chair Warsh is a hawk or a pragmatist. Wong noted that Warsh inherited an economy with unexpected resilience, a strong labor market, and inflation well above the 2% target. However, President Trump has repeatedly called for rate cuts, creating a conflict between economic reality and political demands. Market expectations for policy have shifted from rate cuts to hikes, with pricing moving from 2.3 cuts priced at the start of the year to 1.5 hikes now.
He emphasized that sticky inflation is the core challenge facing the Fed. Core PCE inflation remains between 3.3% and 3.4%, with headline CPI above 4%. Coupled with chip shortages and component price increases driven by AI industry expansion, the persistence of inflation has exceeded market expectations. The current economic environment does not support easing, forcing Warsh to balance political demands against economic data, adding uncertainty to the gold market.
Cyclical Dollar Strength Compels Recognition of Gold's Reserve Value
Wong believes that while the US dollar is in a long-term downtrend, its role in global financial settlements remains irreplaceable, and periodic strength will persist. Each episode of dollar strength increases overseas debt costs and tightens global liquidity, compelling central banks to accelerate reserve diversification and reduce reliance on the dollar system. Gold, as a neutral reserve asset, becomes a core choice for nations.
Data shows that following the Russia-Ukraine conflict, the proportion of global gold reserves to total reserves surged from around 12% (the level since 2000) to a peak of 34%. Although it retreated to 27% by the end of the second quarter, the long-term trend of gold returning as a strategic reserve asset remains unchanged. As an "outside money" with no political affiliations or counterparty risk, gold has become a core reserve asset in a multipolar world. Its role has extended beyond a traditional inflation hedge to a monetary hedging tool.
Conclusion
In summary, the deep correction in the gold price in June was the result of a confluence of short-term negative factors, with dollar strength and Fed hike expectations dominating the near-term trend. However, from a long-term perspective, the weakening dominance of the US dollar, the acceleration of global reserve diversification, and gold's unique attributes as a neutral reserve asset will continue to support its long-term value.
Paul Wong cautions that gold's short-term trajectory remains tethered to the dollar, but periodic corrections will not alter its long-term bullish structure. Each round of dollar strength, in fact, accelerates the recognition of gold's reserve value, providing opportunities for long-term allocation.
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