Gold prices have plunged, but fervent investors appear unfazed. After surging to near $4,000 per ounce recently and then dropping more than 6% in just two days, major hedge funds and gold investors are interpreting the pullback as a "breather from overheating" and are instead seeing a buying opportunity.
On the 22nd (local time), Bloomberg said Kevin Smith, chief investment officer (CIO) at U.S. asset manager Crescat Capital, noted, "Fiscal deficits and liability imbalances in advanced economies, including the United States, remain," adding, "Gold's fundamentals are still intact." He has consistently projected an uptrend since 2019, when gold hovered at $1,500 per ounce, and despite the latest decline, he called it an "asset worth buying."
Large-scale gold purchases by the Central Bank are still a key factor supporting the market. Andrew Matthews, head of precious metals distribution at UBS Group, said, "Since the invasion of Ukraine, central banks have increased the share of gold to diversify foreign exchange reserves," adding, "This trend is likely to continue."
The recent surge accelerated as individual investors' "FOMO (fear of missing out)" kicked in. Individual and institutional investors in the West poured money into gold exchange-traded products (ETPs), and options volume hit an all-time high. Photos of long lines outside gold bullion retail shops spread on social media (SNS), stoking speculative sentiment.
Still, experts diagnose the plunge as a necessary correction for an overheated market. According to Bloomberg, holdings of gold-related ETFs increased by 4.2 million ounces over the past five weeks, nearing 100 million ounces, but technical indicators were flashing short-term overbought warnings. In fact, on the 22nd, spot gold fell 6.3% in a single day, the steepest drop since 2013.
Behind the move were a stronger dollar, the end of India's festival-season demand, and easing U.S.-China trade tensions. Jane Foley, head of currency strategy at Rabobank, said, "For institutional investors, this decline could be the last warning about the recent 'bubble-like rally.'"
However, many say it is too early to conclude the market's underlying uptrend has broken. Jerry Fraier, chief executive officer (CEO) of U.S. investment manager Mount Lucas Management, said, "Gold prices will likely move in a box range around $4,000 for the time being, but as long as the preference for safe-haven assets holds, the long-term upward trend remains intact."
Giovanni Staunovo, a UBS commodities strategist, said, "This correction can be seen as a consolidation process that cools short-term overheating," adding, "Gold remains a structurally strong asset."
Another variable is U.S. politics and the Federal Reserve's rate policy. As President Donald Trump applied pressure on the independence of the Central Bank and continued remarks that rattled the trade order, some investors see "the greater the policy risk, the more gold will again become a haven." In fact, over the past few months, gold buying has tended to strengthen whenever geopolitical tensions and political uncertainty have increased.
Some in the market also say the "safe-haven myth" of gold remains powerful. A precious metals analyst at JPMorgan said, "As long as liability crises and concerns over currency depreciation persist, gold will remain a more attractive alternative than other risk assets," adding, "Volatility is high in the short term, but it is hard to say the long-term upward cycle has completely ended."