Gold is heading for its steepest quarterly decline since April 2013, with prices retreating around 24% from the record high of nearly US$5,589 per ounce reached in late January. The August Gold Futures contract was trading at US$4,031.70 on Tuesday.
Dollar strength and Fed expectations pressure bullion
The decline has largely been fuelled by a stronger U.S. dollar and rising expectations that the Federal Reserve could tighten monetary policy further.
U.S. Dollar Index futures are trading near their highest level in 13 months as investors reassess the interest-rate outlook following hawkish signals linked to persistent inflationary pressures stemming from the conflict in the Middle East.
Because gold does not generate income, it tends to lose appeal when real interest rates rise. The precious metal is now down more than 6% since the start of the year after briefly falling below the key US$4,000 per ounce psychological threshold on 24 June for the first time since November 2025.
Options markets point to growing downside risks
Investor positioning has also turned increasingly cautious.
For the first time since 2016, the put/call skew in gold options has moved into positive territory, indicating traders are paying more to protect against further price declines than to benefit from additional gains.
Goldman Sachs’ Co-Head of Commodities, Samantha Dart, described the change as an important shift in market sentiment, saying tail-risk positioning has moved away from bullish energy trades and towards downside protection in gold.
Despite this, she maintained a constructive long-term outlook.
“Gold is not done,” she wrote in a note published on 29 June. “We continue to see further upside, driven by both structural and eventually cyclical factors. Structurally, EM central bank diversification — following the 2022 freezing of Russia’s reserves — remains the anchor of our $4,900/toz end 2026 forecast.”
Goldman’s target suggests potential upside of roughly 21% from current price levels.
Central banks continue to favour gold
A survey released on 30 June by OMFIF covering 90 central banks, sovereign wealth funds and public pension funds showed that, for the first time, more central banks expect to reduce their exposure to the U.S. dollar than increase it over the coming decade.
The report also found that gold “has moved to the centre of reserve management strategy,” with a net 30% of respondents planning to increase their gold holdings over the next one to two years.
OMFIF Senior Economist Yara Aziz said “the old assumption that public investors can wait for the environment to normalise looks increasingly unrealistic.”
Gold’s diversification appeal has weakened
Goldman Sachs also noted that gold’s traditional role as a portfolio hedge has weakened.
At the start of the Middle East conflict, gold and other commodities were negatively correlated with the S&P 500, offering investors diversification benefits. Since then, that relationship has shifted to a positive correlation, reducing gold’s hedging value while increasing its sensitivity to moves in the U.S. dollar.