WHAT HAPPENED TO THE GOLD PRICE: TRAJECTORY, FUNDAMENTALS AND LESSONS
Gold is not just a lonely chart: it is a barometer of global liquidity, geopolitical risk and monetary credibility. After a 52 per cent yearly rise, the metal saw a tactical 9 per cent correction within 72 hours following a 19 per cent gain in October 2025, then a 4 per cent rebound. Yet the underlying pillars remain firm: record central‑bank purchases (1,080 tonnes in nine months, +28 per cent vs 2022), negative real yields (‑0.8 per cent on the 10‑year) and de‑dollarisation (gold already equals 18 per cent of emerging‑market reserves; it was 11 per cent in 2018). This report places the short‑term noise within a long‑term trajectory, outlines structural engines and draws lessons from historical episodes to set levels, scenarios and strategy.
Trajectory and context
Before discussing the latest price jolt, it’s worth mapping the road that brought gold here. Since the demise of Bretton Woods, the metal has alternated between major regimes: an inflationary boom in the 1970s, two decades of disinflation and a strong dollar, a secular bull market from 2001 to 2011, a prolonged correction until 2015, a base‑building phase in 2016–2019 and, from 2020 onwards, a new regime combining pandemic shocks, extraordinary fiscal stimulus and swelling public balance sheets. That backdrop has reframed gold’s function: no longer only a ‘haven’, but also a policy asset, a reserves diversifier and high‑quality collateral in a more fragmented market.
In 2025 that narrative accelerated. Gold advanced 52 per cent year‑to‑date, outpacing global equities and sovereign bonds. The path was not linear: between 1 and 30 October it rose 19 per cent, then fell 9 per cent in just 72 hours and rebounded 4 per cent over the following two sessions. That rhythm — vertical surge, profit‑taking, stabilisation — is typical of healthy trending markets. It does not invalidate the thesis; the ‘clean‑up’ of positioning lets the next leg stand on firmer ground.
The micro‑explanation for the setback was tactical. The dollar index strengthened 2.1 per cent in four days after progress on a trade pre‑agreement, equities absorbed flows (Nasdaq +3.4 per cent in the same window) and the COMEX saw long speculative positions close after touching 680,000 contracts. Open interest retreated 11 per cent and the futures curve returned to moderate contango — a sign of normalisation after euphoria. When a bull market shifts from backwardation to gentle contango, it is often signalling that leverage has deflated and carry financing has reset to reasonable parameters.
Beyond the headline, the structural trajectory reveals layers. On a secular horizon, gold responds to long‑run inflation expectations, perceived fiscal discipline and the make‑up of central‑bank reserves. On a cyclical horizon, the levers are real rates, the slope of the US Treasury curve and the dollar’s direction. Tactically, derivatives positioning, flows in physical ETFs and headline shocks dominate. Knowing which layer is driving each stretch of the chart avoids overreacting to day‑to‑day noise.
Reading the price in layers
A practical way to read today’s path is to disaggregate drivers by horizon. Secularly, de‑dollarisation has lifted gold’s weight in emerging‑market reserves (from 11 per cent in 2018 to 18 per cent today), with China and India accounting for 62 per cent of recent official purchases. Cyclically, 10‑year real yields at ‑0.8 per cent remain propellant. Tactically, the leverage purge after October’s rally — visible in open interest and contango — has left a less over‑crowded board for the next directional move.
Secular: reserve reallocation into non‑sovereign assets and a preference for high‑quality collateral.
Cyclical: inverse link to real yields; every ‑0.1 percentage point in real yields adds ~USD 80–120/oz by elasticity models.
Tactical: sensitivity to DXY, flows into physical ETFs and the futures term structure (contango/backwardation).
Microstructure: spot‑futures basis, regional premia and inventory financing costs.
For execution, the near‑term map still respects levels: the USD 3,850–3,880 area as a buy‑the‑dip zone; USD 4,100–4,150 as a band where active hedging is warranted; USD 4,250–4,300 as an objective if a 25 bp cut is confirmed. The bearish alternative gains traction with a firm DXY above 108.50, which could force a visit to the 50‑day exponential moving average and, if it gives way, to USD 3,720. Discipline — staged entries, delta management with options, leverage control — tends to matter more than a binary bet.
Signals to monitor
Dollar index: breaks and rejections around 108.50 will pace the correction or its end.
Flows into physical ETFs: sustained re‑entries often accompany resistance breakouts.
Futures structure: moderate contango post‑clean‑up suggests healthy repositioning.
Real yields: deeper negatives tend to accelerate gold’s impulsive legs.
Bottom line for section one: the recent setback is explained by tactical variables and helps to sanitise the trend. The underlying trajectory — underpinned by secular and cyclical drivers — remains intact and, if anything, better aligned for a less fragile advance.
Long-term fundamentals
Gold rests on three pillars now acting in concert: (1) record official demand, (2) persistently negative or insufficient real rates, and (3) gradual de‑dollarisation in reserves. This triad is complemented by mining‑supply constraints, stronger preferences for allocated custody and a market microstructure that rewards ‘clean’ collateral. Together, they amplify the upside bias and reduce the odds of deep, protracted drawdowns.
Official demand and reserve reallocation
Central banks purchased 1,080 tonnes in the first nine months of the year, a pace 28 per cent above the 2022 record. China and India concentrate 62 per cent of these purchases, cementing themselves as the marginal buyers that absorb surplus physical supply. This demand is less volatile than retail flows and less sensitive to headlines: it reflects strategic decisions on financial resilience, sanction‑proofing and diversification away from US‑dollar‑denominated assets.
Gold is nobody’s liability: it reduces counterparty risk in reserves.
It works as universal collateral: global liquidity even in stress episodes.
It helps manage balance‑of‑payments shocks: supports credibility of domestic anchors.
It anchors expectations during currency transitions: dampens local‑currency volatility.
The practical consequence: when price dips, official buying tends to ‘show up’ and cushion the fall. That feature makes deep drawdowns rarer and shorter than in past cycles — and more attractive as opportunities for investors with medium‑term mandates.
Real rates, the dollar and global liquidity
With US core inflation still above 3 per cent and the Federal Reserve on pause, the 10‑year real yield hovers around ‑0.8 per cent. In such an environment, the ‘penalty’ for not clipping a coupon fades and gold regains relative appeal against sovereign bonds. Sell‑side elasticity models estimate that each ‑0.1 percentage point in real rates adds between USD 80 and 120 per ounce. This transmission channel explains why gold reacts sharply to dovish surprises or activity data that cool rate‑hike expectations.
The dollar index is the other hinge. Fast appreciations often force tactical adjustments; persistent weakness enables trend extension. But the dollar does not act in a vacuum: it interacts with global liquidity, growth differentials and risk appetite. Hence, in a world of large fiscal deficits and looser monetary equilibrium, the gold‑dollar link can become less mechanical and more sensitive to official‑sector flows.
Dovish surprises: often coincide with gold breaking through resistance.
Weak dollar with falling real yields: the most potent combination for fresh highs.
Risk shocks: trigger defensive bids and raise regional physical demand.
Mining supply and microstructure
Supply does not respond instantly to price: long permitting cycles, heavy capex and fewer high‑grade discoveries slow any increase in output. Recycling and secondary trade help bridge gaps but cannot pivot cycles alone. In parallel, the post‑crisis era raised balance‑sheet costs for unallocated exposures, increasing the preference for direct custody and allocated metal. For investors, that implies careful attention to storage costs, tracking error and the liquidity profile of the chosen vehicle.
Rigid supply: short‑term price‑to‑production elasticity is low.
Preference for allocated: reduces operational and counterparty risk.
Futures curve: moderate contango facilitates hedging and orderly carry.
Regional bases: LBMA–Asia differentials give early signals of physical tightness.
Portfolio implementation and risk management
A strategic gold allocation plays a dual role: it lowers overall portfolio volatility and adds convexity when inflation is uncertain. For family offices, an allocation around 12 per cent balances resilience and liquidity. Tactically, level‑based management improves risk‑reward: add on pullbacks towards USD 3,850–3,880, hedge USD 4,100–4,150 with December calls at 4,200 when implied volatility is low (~18 per cent), and avoid persistent outright shorts in a regime of official buying.
Vehicles: physical ETFs for beta, micro futures for precision, allocated metal accounts for long horizons.
Hedging: financed calls to manage upside without sacrificing the core exposure.
Discipline: stage entries and avoid over‑leverage after vertical moves.
Synthesis of the fundamentals: downside is cushioned by official demand and negative real yields; upside accelerates when the dollar loses steam or monetary policy surprises dovish. That asymmetry favours well‑calibrated long exposure and macro patience.
Historical lessons and scenarios
Gold cycles have memory. In bull markets, consolidation phases tend to be deep but brief; they reset leverage and prepare the ground for fresh highs. Comparing the present with past episodes helps to separate structure from noise.
Useful historical parallels
In 1974–1976, after doubling during the 1973 inflation shock, gold fell roughly 47 per cent over 20 months, then resumed an advance culminating in the 1980 peak. In 2006, a 21 per cent drop over three months following an 80 per cent rally was a positioning reset; two years later the price had doubled. During the 2008 crisis, the metal receded ~30 per cent, but posted a new all‑time high in 2011 amid quantitative expansion. In 2020, after first breaking USD 2,000/oz, gold retreated to ~USD 1,760 before the 2023–2025 cycle set new highs, powered by record official buying and depressed real yields.
Common pattern: strong impulse → profit‑taking → leverage clean‑up → new highs.
Today’s difference: official sector as demand stabiliser reduces drawdown depth.
Lesson: in favourable regimes, corrections are opportunities rather than tops.
What the current pattern suggests
The recent script fits the historical manual: quick rally, a firmer dollar, purge of longs, return to moderate contango and rebalancing. On that footing, the base case (70 per cent) envisions consolidation between 38.2 per cent and 50 per cent of the October–November leg, followed by a move towards USD 4,250–4,300 if a 25 bp cut is delivered on 18 December. The alternative (30 per cent) is triggered with DXY >108.50 and points to support at the 50‑day EMA; if that breaks, the next reference is USD 3,720.
Bullish confirmations: real yields deepening negative and renewed inflows to physical ETFs.
Short‑term thermometer: DXY rejection at 108.50 and weekly closes above USD 4,150.
Risks: hawkish surprises lifting the opportunity cost, or liquidity shocks forcing indiscriminate selling.
Calibrated strategies by profile
How you hold matters as much as what you hold. For active profiles, pullbacks towards USD 3,850–3,880 are entry windows with disciplined stops below dynamic supports; for strategic portfolios, keep a core without aggressive timing and manage the ‘excess’ with options to maximise convexity. In both cases, avoid the illusion of pinpoint precision: in macro‑driven assets, risk control outweighs perfect forecasting.
Strategic core: maintain the anchor position; rebalance periodically rather than react to headlines.
Tactical layer: December calls at 4,200 to cover the USD 4,100–4,150 band with IV near 18 per cent.
Leverage management: prefer micro futures for granularity and margin control.
Partial‑exit cue: vertical extension with momentum divergences and fading flows.
New idea: gold as native collateral
An emerging piece of the puzzle is the more efficient ‘financialisation’ of gold. Asset tokenisation, 24/7 liquidity and a regulatory tilt towards high‑quality collateral may broaden the metal’s uses beyond passive reserves. If gold consolidates as interoperable collateral — from clearing‑houses to tokenised networks — its financial utility could expand without compromising its central characteristic: it is not another party’s liability.
Direct collateralisation: reduces frictions and balance‑sheet costs for systemic intermediaries.
Integration with derivatives: cheaper hedges and better delta granularity.
Institutional custody: momentum towards allocated accounts and higher quality standards.
Technological bridges: faster settlement and lower operational risk.
What to expect, then: so long as elevated official purchases persist, real rates remain negative and the financial system continues to prize collateral without counterparty risk, setbacks should skew towards opportunity rather than threat. Gold’s history supports that verdict; the market architecture now taking shape could reinforce it.
