As the price of gold slips below US$4,000 an ounce, down about 30 per cent from its high in January, the commodity is losing its appeal as a hot trade that caters to momentum-chasing investors.
Perhaps that’s a good thing: It means gold is returning to its traditional role as a hedge against calamity, where it belongs.
If you recall the head-scratching rally of the past two years, the soaring price often left observers scrambling for explanations to justify the gains.
The inconsistent trade policies of U.S. President Donald Trump, spiraling U.S. deficits and waning Federal Reserve independence – which eroded confidence in the U.S. dollar – were popular reasons.
Another: Some central banks wanted more gold in their vaults as a way to diversify their currency reserves beyond the U.S. dollar, which underpinned consistent demand for the commodity.
Oh, and let’s not forget all the hand-wringing over geopolitical conflict and a potential stock market bubble, which made gold look like a safe bet.
Whatever the reasons, gold shone brightly for a while. It blasted through US$3,000 an ounce in March, 2025, then US$4,000 in October, then US$5,000 in January, 2026, when it surged to an intraday high of US$5,626.80 an ounce.
Suddenly, it looked like everyone was a gold bug. Analysts at Deutsche Bank and JPMorgan Chase & Co., among others, expected gold to break through US$6,000 an ounce next as the party rocked on.
Instead, the rally has faded in a big way, suggesting that the price of gold behaved like an over-popular stock that felt the pull of gravity.
The price has fallen more than US$1,600 from its highs near the start of the year. At a level just below US$4,000 an ounce early Friday, gold is now trading at nine-month lows.
By the looks of it, investors have moved on.
Large inflows into gold-backed exchange-traded funds – a popular approach to gaining quick exposure to precious metals without taking possession of actual coins, bars and ingots – reflected enthusiasm for gold and helped drive the rally.
But it has begun to fade.
There was an outflow of US$8.9-billion from gold ETFs in June while holdings fell by 74 tons, according to the World Gold Council. For North American ETFs, the outflows during the first half of the year define the worst six-month period since 2013.
The share prices of Canadian gold producers, which led the S&P/TSX Composite Index last year, have flopped. Agnico Eagle Mines Ltd., the sector’s $100-billion behemoth, has slumped more than 40 per cent since March.
So, RIP gold?
If you are a contrarian investor who perks up at the sight of beaten-up sectors – who, me? – gold’s fading rally might be worth exploring.
The most worrisome part about the rising price earlier this year was that it launched gold into the orbit of risky assets like stocks. Rather than offering an offset against declining equities, gold at times traded in sync with major benchmarks.
And when investors grew nervous about the continuing U.S. war against Iran, which disrupted global trade and sent crude oil prices soaring, there was no safety in gold: Prices fell.
Now that interest in the asset is cooling, the metal looks more appealing as a safe haven investment rather than a to-the-moon momentum play.
Hedges are necessary in a world where lots can go wrong. The U.S. political environment is messy, Mr. Trump is unpredictable and Western democracies are shredding fiscal discipline in favour of re-arming. China and Russia are simmering geopolitical threats. And stock market valuations appear stretched, to say the least.
Bonds and cash can provide attractive alternatives to stocks, but might not help if inflation is percolating again – which could make gold an ideal hedge.
The other bullish pillar: Central banks aren’t as flighty as short-term investors, and appear to be committed to the precious metal as a source of diversification. For them, cheaper gold is a buying opportunity, underpinning demand.
Ed Yardeni, president and chief investment strategist at Yardeni Research, argued in a note this week that China’s central bank, in particular, remains committed.
It bought 15 tons of gold in June. That was the biggest monthly purchase of the year and marked the twentieth consecutive month of buying.
“It’s part of President Xi Jinping’s decade-long push to pivot away from the dollar and position the yuan as the new reserve currency. We expect that China will continue to buy lots of gold,” Mr. Yardeni said.
Gold is down. And now the case for owning it looks a whole lot better.