Weekly Buzz: What’s behind gold’s drop?

Gold has had a rough few weeks. After reaching a record high above $5,400 in late January, prices have come down to around $4,500. It's a big move, but the drop says more about short-term market dynamics than gold's long-term role.

What’s going on here?

The sell-off traces back to oil. The Iran conflict has pushed prices up, and that's changed the interest rate outlook. Earlier this year, traders expected the Federal Reserve to cut rates twice. Now, markets see rates staying put through to year-end, with some even pricing in a hike. When rates rise, assets that don't pay interest, like gold, become less attractive.

Analysts also point to a combination of profit-taking and potential forced selling. 2025 was gold’s best year since the 1970s, with many investors sitting on significant gains. When volatility hit, some locked in profits. Others, particularly leveraged funds squeezed by losses in equities and rising oil costs, likely sold gold to free up cash.

The precious metal is still up by around $1,500 per ounce from a year ago, and the forces behind last year's rally haven't gone away. Central banks bought over 1,000 tonnes of gold for three consecutive years through 2025, and J.P. Morgan expects another 800 tonnes in purchases this year alone.

What’s the takeaway for investors?

Corrections like this can be uncomfortable, but they're not unusual. Gold fell around 25% during the 2008 financial crisis before rallying to new highs, while aggressive rate hikes in 2022 saw the precious metal lose roughly 15% before recovering.

Gold’s role as a portfolio diversifier shines in exactly the kind of environment that's forming now: one where prices are rising and uncertainty is high. For long-term investors, pullbacks like these have historically served as better entry points than exits.

(For a portfolio with gold as part of a globally diversified asset mix, see General Investing.) 

In Other News: Markets bounce on US-Iran back-and-forth

The US-Iran conflict is keeping markets on edge. Over the weekend, the US threatened to strike Iran's power plants if it didn't reopen the Strait of Hormuz, and Iran warned of retaliation against energy infrastructure across the Gulf.

Then the tone shifted. On Monday, the president announced a five-day pause on strikes, citing productive conversations with Tehran. US stocks gained over 1% and Brent crude fell 11%, dipping below $100 a barrel.

The relief was short-lived. By Tuesday, stocks had given back a chunk of their gains as Iran denied that any talks had taken place, and strikes on both sides continued.

There’s a pattern here: aggressive threats followed by a walk-back when markets react. This time, rising US borrowing costs may have played a role. Investors were starting to price in a rate hike this year, when not long ago, they’d been betting on at least one cut. Higher rates slow the economy, which adds pressure on the US administration to de-escalate.

The takeaway is familiar: headline-driven volatility tends to be short-lived, and reacting to each development rarely pays off. Staying diversified remains the best way to ride it out.

This article was written in collaboration with Finimize.