The gold price fell sharply on Monday morning, dropping nearly 10 percent in a short period and recording its biggest weekly loss since 1983. Higher inflation, rising interest rates, and a stronger dollar are putting pressure on the precious metal. Profit-taking also contributed, experts say.
Although the gold price was only down a few percent by Monday afternoon, the situation looked very different earlier in the day. Shortly after 8 o’clock CET, the precious metal was down more than 10 percent, at just over 4,100 dollars per troy ounce (31.1 grams). Compared to its peak of above 5,400 dollar per troy ounce at the end of January, that represents a decline of nearly 25 percent.
And this is happening against a backdrop of heightened geopolitical tensions and, more specifically, a weekend of escalating threats between US President Trump and Iran. Gold typically performs well in such an environment.
Taking profits
Experts do not find the drop surprising. Other factors that gold is sensitive to are currently unfavorable for the metal. Inflation is rising, interest rates are increasing, the likelihood of further rate hikes is growing, and the dollar is strengthening, according to strategist Philippe Gijsels and portfolio managers Jeroen Blokland and Ralph Sandelowsky. Each of these is a traditional reason for gold prices to decline.
In addition, markets—and the gold price—have risen so sharply in recent months that even a modest increase in volatility is prompting investors to take profits, or “lock in” gains, sometimes to generate cash for margin calls on leveraged investments. Gold is then an “easy” position to sell, explained chief strategist Philippe Gijsels of BNP Paribas Fortis.
“Given the rise in interest rates and the decline in equity markets, a 10 percent drop in gold looks disproportionate”
Jeroen Blokland, founder of the Blokland Smart Multi-Asset fund
Ralph Sandelowsky, who manages the Achmea IM Commodity Fund, added that as investors allocate an increasing share of their portfolios to illiquid assets, gold moves higher on the list of assets to sell. “Private credit is harder to sell.”
Despite this combination of factors, he was still surprised by the intensity of Monday’s move. Jeroen Blokland, of the gold-investing Blokland Smart Multi-Asset fund, shared this view. “Given that interest rates have risen by about half a percentage point and equity markets fell a few percent on Monday morning, a 10 percent drop in gold seems disproportionate.”
Safe-haven function
What about gold’s safe-haven role, given the current level of global unrest? Sandelowsky of Achmea IM said: “Gold was always a safe haven—I say ‘was’ very deliberately. What is happening is that the type of investors buying gold is changing. For a long time, only central banks bought gold; then institutional investors joined, and more recently retail investors have followed. They behave differently from the ‘traditional’ gold investor and sell more quickly.”
“China, along with Arab countries, normally buys a lot of gold, but China now has a smaller trade surplus while the Gulf states have other priorities”
Philippe Gijsels, chief investment strategist at BNP Paribas Fortis
Gijsels does not necessarily believe gold is losing its safe-haven role, but rather that investors currently prefer other safe havens over the precious metal. “The dollar, and paradoxically the Magnificent Seven, because they have strong balance sheets and solid cash flows.”
The BNP Paribas Fortis strategist also points to a pause in central bank purchasing. “China, but also Arab countries, normally buy a lot of gold. China now has a smaller trade surplus and may have less money left for gold, and the Gulf states have other priorities. That said, once the conflict in Iran subsides, we will still be living in a world where gold should perform relatively well. I believe this is simply a correction within a long-term upward trend, in which gold will move much, much higher in the coming years.”
Short-term noise
By Monday afternoon, the gold price was above 4,400 dollar per troy ounce, still more than 100 percent higher than a year earlier, emphasized Blokland, who has invested a quarter of his fund in the precious metal since 2024. “We are heavily invested in gold, so this is the most unpleasant thing that can happen to a fund. Looking at the twenty worst stock market months since 2008, gold posted gains in sixteen of them; this time, it hasn’t, and there is nothing you can do about it.”
“This decline is obviously unpleasant in the short term, but once the inflation shock passes and central banks resume purchases, it could reverse just as quickly.”
Ralph Sandelowsky, portfolio manager at Achmea IM
The Achmea IM commodities fund adjusted its benchmark some time ago from a standard commodity benchmark to an equally weighted benchmark including energy, industrials, and precious metals, which has increased its allocation to gold compared to the previous situation. “Because we wanted greater diversification across different sources of inflation,” said Sandelowsky. “From that perspective, we saw a move above 5,000 dollar per troy ounce. This decline is of course unpleasant in the short term, but once the inflation shock passes and central banks resume purchases, it could quickly fade. I see this more as a short-term deviation, while institutional investors focus on the long term. And in the long term, the outlook still looks very solid.”