Recap of gold’s rollercoaster ride

The January rally didn’t come out of nowhere. At the start of 2026, investors faced many uncertainties – ranging from unclarity about the appointment of a new Federal Reserve chair to rising geopolitical tensions. This fuelled interest in gold as a ‘safe haven.’ Additionally, this occurred at a time when the traditional negative correlation between equities and bonds was less reliable. Typically, when equity markets are under pressure, bonds serve as a buffer in portfolios – and vice versa. As this dynamic became less dependable in recent years, gold’s appeal as a diversification tool in portfolios increased.

Crucially, demand for gold was broad based rather than purely speculative. Global ETF inflows into gold remained firm, and gold price developments in China signalled robust interest for physical gold, even with price levels around record highs. As a result of this broad-based demand, gold prices reached new record price levels.

The USD 1,200 drop was mainly caused by market positioning and a lack of liquidity. When news about the appointment of a potentially more hawkish Federal Reserve chair emerged, it hit the market at a moment when leverage was high. As some gold investors took profits, margin calls kicked in, which led to forced selling. Thin liquidity in gold markets led to stronger price movements, further accelerating the decline.

The fall looked less like a change in long term fundamentals and more like a cleanup of overly stretched positions. Even during the drop, demand for physical gold started to rise again. Long term buyers seemed to be stepping in, helping stabilise the market.

The quick recovery to around USD 5,000 came from bargain hunters, improving liquidity, and renewed demand for physical gold at lower prices. However, volatility remains high.

Near term indicators to watch include positions in gold options and futures, as well as bid ask spreads. Also physical flows, especially gold shipments to Asia, and gold demand from China and India can prove to be important indicators.

The late January volatility showed how quickly markets can overshoot when leverage is high and liquidity is thin. The rally before the correction, however, was supported by a broad and stable investor base, including private and institutional buyers. We expect this broad-based demand for gold to remain intact in the medium term.

Gold’s rally, sharp drop, and rebound served as a reminder that upward trends aren’t always smooth. Prior to the recent price drop, we slightly trimmed our overweight position in gold, as we saw an increased risk of a technical correction following the strong rally. Indeed, a correction has occurred. Nonetheless, we maintain our positive view on gold in the medium term, as we believe investors can use gold to diversify their portfolio and achieve protection against downside risks.

We expect gold to average around USD 5,200 in 2026 and finish the year near USD 5,600, supported by central bank buying, a weaker dollar, and geopolitical tensions fuelling safe haven demand. Short term gold demand may get a boost from Chinese New Year gifting between mid February and early March.

Jan Wirken
Senior Equity & Commodity Research & Advisory Expert