Gold Market Analysis: Interest Rates Outweigh Geopolitical Impact

Author: David, Chaoxiang Research

Those who rushed to buy gold four months ago probably didn’t expect they were buying at a peak even a war couldn’t save.

In the final week of January this year, gold reached the most intense phase of this bull market. From January 26 to 29, spot gold broke through six key psychological levels—from 5,000 to 5,500—in four consecutive days, posting gains exceeding 3% for three straight trading sessions, an extremely rare occurrence in gold trading history.

On January 29, London spot gold reached $5,596.33, a new all-time high.

The top appeared the next day. On January 30, Trump nominated Kevin Warsh, known for his hawkish background, as the next Fed chair; gold plunged nearly $670 within 30 hours, posting its largest single-day drop since 1983, while silver briefly tumbled as much as 36% intraday.

Note this time—exactly one month remains until the outbreak of war between the U.S. and Iran.

The first hand to push gold down from its peak was monetary policy, a pattern that repeatedly played out over the following four months. What followed is familiar to all: war, sanctions, rebounds, and prolonged declines... By June 11, the August COMEX gold futures settled at $4,133.30, down more than 20% from the March high, officially confirming a technical bear market—just 91 days after the peak, the fastest descent into bear territory since 2008.

Over the past few days, opening the market community, retail investors have asked nearly the same question: “With the war escalating so fiercely, why isn’t gold rising—it’s falling?”

I believe this question is backwards. What should be asked is: why, on the first day of the war, was the market still following the old script and rushing to buy gold; yet a hundred days later, the same war became a reason to sell gold?

In times of turmoil, buy gold—this script was indeed followed at first by the market.

On February 28, the day of the U.S.-Israel airstrike on Iran, spot gold surged from $5,296 to $5,423. However, this increase lasted only one trading day. As the war did not result in a quick victory and the conflict became deadlocked, the pricing dynamics for gold shifted accordingly.

The new chain, in my view, proceeds as follows:

The blockade of the Strait of Hormuz has driven up oil and gas prices; rising energy costs have pushed inflation expectations higher, forcing central banks to re-tighten monetary policy. Since gold yields no interest, higher interest rates increase the opportunity cost of holding it.

Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, an independent financial research and investment advisory firm in London, believes that geopolitical tensions supporting oil prices imply more persistent inflation, making it harder for the Federal Reserve to cut rates, and driving continued demand for U.S. Treasuries.

Is this analysis valid? Look at the numbers below.

First, the CME FedWatch Tool shows a 98.2% probability that the FOMC will hold rates steady next week, with traders expecting the next move to be a rate hike in December;

Second, before the conflict began, the market had expected the Federal Reserve to become more dovish later this year. The European Central Bank acted faster; according to Refinitiv data, a 25-basis-point rate hike on Thursday had become the market consensus.

Before the war, everyone was waiting for rate cuts; after the war, they’re waiting for rate hikes. As a result, the foundation for gold bulls has been completely undermined over these four months.

The most telling example was the counterexample in May. On May 18, Iranian media reported that the U.S. had agreed to exempt oil sanctions during negotiations, causing crude oil prices to drop immediately. According to risk-off logic, with heightened expectations of peace, gold should have declined only slightly.

In reality, the price of gold fell below $4,500 on that day for the first time since the end of March.

Gold fell during periods of calm as the safe-haven premium faded; it also fell when tensions rose due to rising interest rate expectations. Bullish sentiment has been squeezed from both sides—this is the true nature of this gold bear market.

China Construction Bank Securities provided an even more aggressive assessment in its research report:

The essence of gold's surge in 2025 is liquidity pricing; after the U.S.-Iran rivalry triggered inflation expectations, liquidity pricing began to wane, and gold must return to its fundamental drivers.

In other words, those who bought gold last year profited from monetary easing, while those who lost this year are suffering from monetary tightening; the missiles in war have always been nothing more than messengers.

However, if this were merely a dispute between gold and interest rates, the list of losers in June shouldn’t be so long. Silver, Bitcoin, and even the Nasdaq—all are being hit in the same direction, and their declines are beginning to look more and more like a single trade.

First, let’s look at an odd phenomenon.

Over the past three months since gold peaked, the Nasdaq 100 index has been rising, only reaching its peak in early June. One was halfway through a bear market, while the other was at the peak of a bull market—they were on entirely different paths.

However, according to Yicai, based on FactSet data, the managing partner of futures broker Altavest calculated that since around the peak of the Nasdaq in early June, the correlation coefficient between gold futures and the Nasdaq has reached 0.91, moving almost in perfect sync. He explained that when investors seek liquidity, gold briefly moves in tandem with other risk assets.

What does this indicate?

This is a classic case of broad market deleveraging. With excessive positions and high leverage, investors are forced to sell quality assets to meet margin calls on losing positions. In plain terms: when you’re short on cash, you don’t sell what you most want to sell—you sell what you can sell fastest.

The same story did not escape Bitcoin, the "digital gold."

In early June, Bitcoin fell below $70,000, dropping 12% in a single week. Spot ETFs experienced nine consecutive days of net outflows totaling approximately $2.8 billion by the end of May, with 94% of single-day liquidations being long positions.

Bitcoin fell 12% in a single week, and gold ETFs experienced continuous net outflows. The common reason for their decline is not poor liquidity—on the contrary, it’s because they are too easily convertible. When leveraged positions face margin calls, the first assets sold are those that can be quickest turned into cash.

Another interesting detail: According to Economic Daily News, the three major buyers that drove gold prices to their peak in January this year were the National Bank of Poland, Tether, and the world’s largest gold ETF, SPDR, which collectively accumulated nearly 1,780 tons over the past year.

The company issuing the stablecoin converted its profits into gold bars, only to be stuck holding the bag alongside retail investors who bought at the peak in late January. The crypto world and the traditional world copied each other’s moves—and this time, both got called out by their parents.

Leverage reduction has one key characteristic: it doesn’t distinguish between good and bad assets, only between liquid and illiquid ones. Therefore, its conclusion is unrelated to fundamentals—once forced selling is exhausted, the downward trend naturally stops.

The question is, how do you know when you’ve sold everything? Historically, there are actually two nearly identical scripts you can follow.

Bull markets for gold are rare, but each one begins in much the same way.

The first script is from 2022. According to publicly available market data, spot gold began rising from around $1,800 before the Russia-Ukraine war broke out, surging above $2,070 after the conflict began. Subsequently, the Federal Reserve initiated aggressive interest rate hikes in March of that year, causing gold prices to reverse and decline for nearly seven consecutive months, reaching a low of around $1,615 by the end of September, erasing all prior gains from before the war.

In early November, gold prices hit a bottom, recovered all losses six months later, and then continued rising steadily to reach a major bull market by January this year.

War, plus tightening. Almost identical to the current structure.

The second scenario is from 2008. According to publicly available market data, during the Lehman crisis, gold initially followed equities downward, falling from a high above $1,000 in March to $681 by the end of October—a decline of more than 30%. Subsequently, as the Federal Reserve shifted to an extremely accommodative stance, gold hit its bottom in November and rose to a historic high of $1,920 three years later.

Both scripts share a common point: the signal that gold prices have hit bottom is never related to a ceasefire—it responds to policy turning points.

The bottom in 2008 occurred when the Federal Reserve shifted to massive monetary easing; the bottom in 2022 occurred when inflation data turned and interest rate hike expectations peaked. The most compelling counterexample is that despite the Russia-Ukraine conflict continuing to this day, gold reached a new all-time high by the end of 2023.

Those waiting to buy the dip after a ceasefire may end up missing the opportunity entirely.

From a time-based perspective, this latest gold decline has just completed its fourth month since the peak at the end of January. In comparison, the 2022 decline lasted nearly seven months.

However, it is important to note that this cycle includes one additional variable not present in 2022: central bank gold reserves.

The structural adjustment of foreign exchange reserves by central banks worldwide is crucial; the gold market is much smaller than the U.S. Treasury market, so even minor reallocations by major U.S. Treasury holders can have a relatively significant impact on gold prices. This time, the floor of central bank buying is somewhat stronger than during the previous cycle.

With gold falling this sharply, voices calling for buying the dip have already started emerging. However, I think it’s worth clarifying two things first:

First, how much further can it fall? Second, what should the turning point look like?

First, let’s discuss the depth. According to Yicai, Citibank this week lowered its three-month gold price target from $4,300 to $4,000 and warned that if the Strait of Hormuz blockade persists until the end of summer, gold prices could fall to $3,500. This is already Citibank’s second reversal in one month.

The investment bank's target price may not be accurate, but it defines the lower bound of this downturn as seen by institutions—leaving about 15% of downside potential from current levels under a bearish scenario.

Let’s talk about the turning point again. I think there are only three signals worth watching:

• Signal 1: Interest rate hike expectations have peaked.

As previously mentioned, the driver of this bear market has been interest rates. The golden bottom in 2022 occurred in the month when expectations for rate hikes peaked. If the rate hike at year-end is actually implemented, the mere resolution of uncertainty could serve as the turning point.

Next week’s Fed meeting is almost certain to hold rates steady; what truly matters is the dot plot and the press conference tone, as they will determine whether year-end rate hikes are the end or the beginning.

• Signal 2: Strait of Hormuz resumes operations.

It is the upstream switch in the entire transmission chain: only when the strait opens can oil prices fall; only when oil prices fall can inflation ease; and only when inflation eases can expectations of rate hikes recede. However, note that the ceasefire rumors in May already demonstrated that ceasefire announcements alone are insufficient—oil prices must remain consistently lower for the chain to fully transmit.

• Signal 3: ETF fund flows have shifted from net outflows to net inflows.

As mentioned earlier, the direct drivers of this downturn are leveraged positions and ETF redemptions, with gold ETFs serving as the fastest exit route. The forced selling will end when no one is left waiting in line outside.

The signal has been covered; below are the author's personal thoughts, which may not be correct, for reference only.

No one can accurately predict the bottom. The logic earlier was that the driver of this bear market was interest rate hike expectations, and the market is currently pricing in a single 25-basis-point hike by year-end.

Gold has dropped nearly 26% from $5,596 to its current level of $4,130, largely pricing in the shift from "no rate hikes" to "one rate hike." If expectations for further rate hikes do not worsen, the downside potential continues to narrow.

Several public reference points can help anchor the range:

Citibank's baseline and pessimistic scenarios point to $4,000 and $3,500, respectively; during the 2008 bear market, gold fell 34%, which maps to around $3,700; during the 2022 decline, it fell 22%, corresponding to $4,365—this level here.

My own approach is to divide this range into three entries: $4,000 for the first, $3,700 for the second, and $3,500 for the third, totaling no more than 30% of my planned position size. I prepare for each entry as if I might get trapped (not investment advice, solely my personal opinion).

Splitting into three trades isn't because I calculated the bottom—it's precisely because I couldn't, so I'm using diversification to hedge against the cost of being wrong.

Whenever two of the three signals light up simultaneously, fully replenish your remaining position; at that point, the price may already have moved past the low point, but exchanging a small upward movement for certainty is the most advantageous part of the entire strategy. However, if the price drops below 3500 and the strait blockade has not been lifted, stop adding to your early purchases and better to wait patiently for the signals.

Finally, buying gold during turbulent times is actually correct; however, monitoring interest rates is more useful than monitoring wars.

Disclosure: The author holds gold.

The views expressed in this article are solely those of the author and do not constitute any investment advice. The price levels, signal frameworks, and position strategies mentioned are personal analytical notes and should not be used as a basis for buying or selling.

The market carries risks; make decisions independently.

Data sources: Yicai, Daily Economic News, Blue Whale Finance, Caixin, Sina Finance, CME FedWatch, LSEG (Refinitiv), FactSet, Citigroup Research Reports, CITIC Construction Investment Research Reports, Yahoo Finance market data

Tide Research · June 2026