Gold’s spectacular rally, which made it one of the best-performing assets in 2025, has been undergoing an equally dramatic correction. Prices have tumbled around 29% from January’s record high of around $5,600 an ounce to below $4,000.
The most popular ETF benchmark, SPDR Gold Trust (NYSE:GLD), has gone deeply into the red, down 8.12% year-to-date.
The main catalyst has been an inflationary energy shock from the U.S.-Iran war. Inflation concerns forced a prompt revision of lower-interest-rate expectations that had driven the precious metals bull market of 2025. Instead, investors encountered tightening monetary policy and rapidly shifting sentiment.
Pricing the Fed
Under the new Fed Chair, Kevin Warsh, policymakers have pivoted away from rate cuts and toward fighting energy inflation. According to the CME FedWatch, markets now imply roughly a 70% probability of a rate increase by September and a near-certainty of another move by December.
The implications for a non-yielding asset like gold are straightforward. Opportunity costs rise, while a stronger U.S. dollar delivers a double whammy. Both dynamics have pressured bullion prices and encouraged investors to reduce exposure through exchange-traded funds.
“The shift away from inflationary cuts toward tighter policy is a headwind for gold,” Bank of America analysts wrote in the latest note.
The bank is among the institutions revising the near-term outlook. Its previous forecast was $6,000 an ounce by next spring – a target that now appears unlikely under current monetary conditions. Analysts argue that gold must first “price out” the expected rate hikes before investment demand can recover.
Deutsche Bank has likewise turned more cautious. According to Bloomberg, the bank cut its third-quarter gold forecast by 22% to $4,300 an ounce, though that still sits above the current spot price of around $4,000.
“Fed repricing, together with resilient U.S. macro data, has played the primary role in pushing gold lower,” analyst Michael Hsueh wrote in the Tuesday note.
The bank expects a rebound toward $4,800 in the fourth quarter if the Fed pauses after its initial tightening moves. However, if three or four hikes materialize, the bank says it could drive the price to $3,800 an ounce.
A Hidden Opportunity
Yet beneath the short-term pessimism, metal’s long-term outlook remains constructive. Central bank demand continues to provide a critical foundation for prices.
A recent survey showed that nearly three-quarters of reserve managers expect moderate or significant reductions in U.S. dollar holdings over the next five years, reinforcing the broader de-dollarization trend that has been driving official-sector purchases.
The opportunity may be even more pronounced in mining equities. Bank of America’s price-to-net-asset-value analysis suggests gold producers are valuing bullion at an average implied price of just $3,354 an ounce, roughly 19% below prevailing spot levels.
However, investors must take an extraordinary price dispersion into account. Wheaton Precious Metals Corp. (NYSE:WPM) carries the highest implied gold price at $4,395 an ounce, while Franco-Nevada Corp. (NYSE:FNV) reflects a far more conservative $2,416.
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