From record peak to sudden drop— What’s driving gold?

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Gold prices saw a sharp correction at the end of the previous week and extended losses in early trading on Monday, following a historic rally that had pushed the yellow metal to unprecedented levels. Prices retreated toward $4,500 per ounce, amid widespread profit-taking and growing investor caution.

 

The pullback came as markets interpreted the nomination of Kevin Warsh by US President Donald Trump to lead the Federal Reserve as a signal of a more hawkish monetary policy stance. The decline was further accelerated after CME Group, the world’s largest futures and options exchange operator, raised margin requirements for gold futures contracts to 8% from 6%.

 

Gold had surged to a record high above $5,500 per ounce on Jan. 29, following the Fed’s decision to hold interest rates steady. The move reinforced gold’s appeal as a safe haven amid pressure on the dollar, alongside continued strength in global demand, particularly from central banks and institutional investors.

 

Uptrend takes shape

 

Gold’s upward trajectory became evident in the fourth quarter of 2024 and accelerated during the first half of 2025, before entering a consolidation phase at historical peaks in the second half of 2025. The trend was underpinned by stable US monetary policy and rising investment and institutional demand.

 

Ahmed Azzam, Head of Market Analysis & Research at Equiti Group

 

Ahmed Azzam, Head of Market Analysis & Research at Equiti Group, said the traditional relationship between a weaker dollar and higher gold prices remains intact, as dollar depreciation makes the precious metal relatively cheaper for holders of other currencies.

 

Speaking to Argaam, Azzam said gold’s fall over Thursday and Friday—despite the persistence of the weak-dollar narrative—signals a temporary shift in market behavior, from conviction-based pricing to positioning and liquidity rotation.

 

He added that the roughly $5 trillion drop in gold’s market capitalization over two sessions does not mark the end of the uptrend, but rather represents a technical correction driven by profit-taking and position unwinding after an exceptional rally marked by a series of record closes.

 

Azzam noted that during periods of strong momentum, markets become highly sensitive to any rebound in the dollar or sudden spikes in volatility, prompting investors to trigger stop-loss orders and reduce risk exposure.

 

In such cases, portfolios often sell profitable assets—such as gold—to protect losing positions, a behavior commonly referred to as “selling winners to hold losers.”

 

He also highlighted the role of political statements in shaping market sentiment, noting that Trump’s comments describing the dollar as “great” and manageable “like a yo-yo” previously reinforced political tolerance for a weaker currency, supporting risk appetite for gold.

 

According to Azzam, sentiment has since temporarily reversed amid growing anticipation over the next Federal Reserve Chair, with speculation centering on Kevin Warsh, who is known for hawkish stance. This fuelled concerns that the expected easing cycle could be restrained, potentially undermining rate-cut and market liquidity expectations, prompting a short-term revision of gold pricing.

 

Dat Tong, Senior Financial Markets strategist at Exness

 

Separately, Dat Tong, Senior Financial Markets strategist at Exness, said gold’s historic surge above $5,500 per ounce reflects a convergence of factors, led by dollar weakness and rising political and geopolitical risks.

 

Tong told Argaam that markets are increasingly pricing in political leniency toward a weaker dollar, particularly amid mounting concerns over the Fed board’s independence, boosting demand for gold as a safe haven.

 

He added that ongoing geopolitical tensions across several regions have further supported demand for the yellow metal, alongside increased central bank purchases and inflows into gold-backed ETFs, reinforcing the long-term bullish outlook.

 

Escalating trade threats and global supply-chain strains are also weighing on the dollar and pushing investors toward safe-haven assets, he said.

 

On Wednesday, Jan. 28, the US central bank held interest rates unchanged at 3.50%–3.75%, supporting gold’s relative attractiveness compared with yield-bearing assets.

 

Hakan Kaya, Senior Portfolio Manager at Neuberger Berman

 

Hakan Kaya, Senior Portfolio Manager at Neuberger Berman, said gold and the broader precious metals market delivered exceptional performance in 2025, ranking among the most successful global asset classes.

 

In an interview with Argaam, Kaya said the momentum has extended into 2026, with gold breaking above $5,500 per ounce, aided by persistent macroeconomic uncertainty, heightened geopolitical tensions, rising central bank purchases, and a strong return of investor appetite for gold-backed ETFs, alongside a shift in Fed policy toward rate cuts.

 

He added that other metals such as silver, platinum and palladium also posted strong gains, benefiting from the same monetary drivers as well as speculative flows targeting higher-beta assets relative to gold.

 

Dollar and gold: a shifting relationship on crisis pressure

 

The US dollar index has fallen about 2.3% since the onset of 2026, sliding to around 96.14 points by the end of January, its lowest level in four years.

 

Azzam said concerns over dollar weakness have not dissipated, noting that a softer dollar is associated with higher imported inflation risks and greater volatility in global commodity pricing, pushing investors toward gold as an asset that is not related to a specific issuer.

 

He added that protectionist policies and economic sanctions have deepened the need for diversification away from US-linked assets, a trend evident in continued central bank accumulation of gold as a long-term strategic sovereign asset.

 

Azzam stressed that while these structural drivers remain powerful, they do not shield gold from short-term corrections. The long-term uptrend is anchored in strategic demand, but day-to-day trading is governed by liquidity and risk dynamics, leaving the metal vulnerable to bouts of panic selling and profit-taking during periods of volatility.

 

He also noted that the historically inverse relationship between gold and the dollar can change, as both can rise simultaneously during major crises, each serving as a safe haven, albeit to varying degrees.

 

He explained that the sell-offs seen during Thursday and Friday reflected this interaction, as liquidity considerations outweighed confidence, temporarily weakening the ability of a weaker dollar to support gold prices.

 

How gold’s strength became a mirror of the dollar’s weakness since 1971

 

Since the decoupling of the US dollar from gold in 1971, the global monetary system has entered a new phase in which fiat currencies became uncovered pricing tools, while gold retained its historical role as a store of value and a hedge against inflation and the erosion of purchasing power.

 

Prior to that date, gold prices were stable at around $35 per ounce. However, they then embarked on a long-term upward trajectory, coinciding with the expansion of dollar printing and rising global inflation levels.

 

According to the latest estimates through 2026, the purchasing power of the US dollar has fallen to around 12.5% of its 1971 level, meaning it has lost nearly 87.5% of its real value over five decades. This has reinforced the need for assets that preserve value over time—foremost among them, gold.

 

Although the decoupling was a political decision, the economic relationship between gold and the dollar has persisted, as the dollar remains the pricing currency for the yellow metal. Under this framework, dollar weakness typically supports gold prices, while dollar strength pressures its gains—reflecting a structural relationship governed by monetary policy trends and inflation rates.

 

Does the rally signal an upcoming financial crisis?

 

Azzam said rising gold prices do not necessarily indicate an imminent financial or economic crisis, explaining that the move reflects heightened investor hedging against a range of risks, most notably expanding public debt, trade policy disruptions, geopolitical tensions, and the potential erosion of institutional trust.

 

He noted that the true indicators of a looming crisis would emerge through widening credit spreads, tightening short-term funding liquidity, and rising stress indicators within the banking sector. A convergence of these factors alongside continued upward momentum in gold would significantly increase the likelihood of a real crisis.

 

For his part, Tong pointed out that the current surge in gold prices does not necessarily imply an impending economic crisis, but rather reflects growing systemic anxiety in global markets.

 

He added that gold typically rises during periods of crisis or declining institutional confidence, noting that recent movements signal broad-based investor hedging against tail risks, despite economic data still showing a degree of resilience in major economies. Meanwhile, central banks—including the Federal Reserve—continue to emphasize overall stability.

 

Tong also noted that markets have begun pricing in higher probabilities of future disruptions, driven by increasing political interference in monetary policy, deteriorating public finances, fragmentation of trade relations, and persistent geopolitical conflicts.

 

Risks and opportunities: Where is gold headed?

 

Azzam explained that the current picture has become dual-sided. The momentum that pushed gold to a record high of $5,600 in 2026 has naturally created an environment conducive to technical corrections—which have already begun.

 

He added that the fundamental drivers supporting the upward trend remain intact, including trade policy disruptions, rising concerns over monetary policy independence, continued central bank diversification of reserves, and growing worries about public debt levels.

 

Azzam stressed that the decisive factor shaping the path ahead will be the performance of the dollar and real yields, noting that the real yield on 10-year US Treasuries remains positive at around 1.9%. This suggests that continued gold strength reflects the dominance of confidence and hedging motives over the impact of interest rates.

 

He added that further correction remains likely should the dollar regain momentum or if global markets experience a broader de-risking wave.

 

Meanwhile, Tong believes that the medium-term outlook for gold remains positive, although the path forward is unlikely to be linear and may involve periods of consolidation or technical pullbacks following the sharp rally.

 

He explained that profit-taking could be triggered by a temporary rebound in the dollar, hawkish surprises from the Federal Reserve, or a short-term easing of geopolitical tensions.

 

Tong expects such pullbacks to present strategic buying opportunities—particularly for reserve managers and long-term allocators—rather than signaling a reversal of the broader trend.

 

In turn, Kaya suggested that the macro landscape may evolve in a way that slows gains in precious metals markets without fully ending them. He noted that some of the drivers that pushed prices to record levels in 2025 may begin to fade this year, especially if geopolitical tensions ease, trade frictions decline, or recession fears recede.

 

He added that any meaningful improvement in risk appetite or global growth indicators could redirect liquidity toward procyclical assets, at the expense of traditional safe havens such as gold. In such a scenario, energy markets, base metals, and certain agricultural commodities could deliver relatively stronger performance.

 

From a technical perspective, Azzam noted that the $4,800 level has now shifted from support to a key testing zone. Holding above it could gradually restore upward momentum, while a clear break below may deepen the correction toward $4,600 and then $4,444, where previous price gaps would be filled.

 

He emphasized that these scenarios do not negate gold’s longer-term trajectory toward $6,000, but they underscore that the path is no longer straight and has become increasingly bumpy—serving as a reminder that gold is not only a safe haven, but also a financial asset subject to volatility and liquidity rotation.