Summary of Key Points
In 2025, the price of London gold surged by 64.56%, reaching a record high of $5,598.75 per ounce at the beginning of 2026 before plummeting by nearly 30% in the following six months to a low of $3,942. The price of gold in China also dropped from 1,256 yuan per gram to 897 yuan per gram. Institutions are divided over the future direction of gold prices: the bears believe that a "historical peak" has been reached (comparing it to the bubble in the Maotai stock market in 2021, with the strengthening US dollar and the rise of technology diverting funds away from gold); the bulls think it's just a "short-term adjustment" (speculative positions are being liquidated, but gold still holds strategic importance); neutral institutions suggest that multiple factors such as interest rate hikes, geopolitics, and economic conditions will determine the trend for the second half of the year. Historically, the end of gold bull markets has been associated with the Federal Reserve's interest rate hikes, but this time there are new factors at play: the price drop occurred before any actual hike, and the rise of AI is competing for funds. However, central banks' continued gold purchases provide some support.
The Sharp Drop in Gold Prices
In 2025, gold prices soared by over 64%, reaching a record high of $5,598 per ounce in January 2026 (about 1,100 yuan per gram). But from the end of January, prices began to plummet, falling below $4,000 in June and even lower in July. The price of gold in China also tumbled from 1,256 yuan per gram to 897 yuan per gram, a loss of 359 yuan per gram, meaning a 3,590 yuan discount on a 10-gram gold bracelet.
Why such a sharp drop? On one hand, the previous rapid increase attracted many short-term speculators who sold their holdings as soon as they realized profits. On the other hand, the volatility of gold prices exceeded 50% after the US-Iran conflict (much higher than the average of 17% in the past 20 years), fueling market panic and accelerating the decline.
Disagreement Among Institutions: "Peak Reached" or "Just a Break?"
There are three main camps among institutions with different opinions:
- Bears (Guotou Securities + JPMorgan Chase): Guotou Securities believes gold is similar to the Maotai stock market in 2021, where prices soared only to collapse later. They argue that the previously weak US dollar has strengthened, and historically, gold bear markets have been triggered by either Fed interest rate hikes (since gold doesn't earn interest, people prefer to deposit money in banks) or the rise of technology (which draws funds away from gold). JPMorgan Chase predicts a 20%-25% drop in gold prices for the second half of the year, stating that the previous rally was driven by safe-haven demand and central bank purchases.
- Bulls (Aberdeen Group): Aberdeen argues that the current drop is just a short-term adjustment; speculative positions have been cleared, but gold's role in the global financial system remains crucial, so short-term fluctuations shouldn't be overly concerning.
- Neutralists (World Gold Council): The future of gold prices depends on three factors: if the Fed raises interest rates before October, prices may hover around $4,100; if geopolitical tensions worsen (e.g., another US-Iran conflict) or the economy declines, prices could rise above $4,500.
Historical Context: How Have Gold Bull Markets Ended?
Gold bull markets have always ended due to the Fed's actions. Two significant examples include:
- First Bull Market (1970s): After the dollar decoupled from gold, prices soared from $35 to $852, but when Fed Chairman Volcker raised interest rates to 20% in 1980 to combat inflation, gold prices fell by 70% and entered a bear market that lasted 20 years.
- Second Bull Market (2001-2011): The internet bubble burst, followed by the 9/11 attacks and the subprime mortgage crisis, leading people to buy gold as a safe-haven. Prices rose by 650%, but when the Fed indicated it would stop printing money (ending quantitative easing) and the economy improved, demand for gold declined.
The common pattern is that whenever the Fed tightens monetary policy (by raising interest rates or stopping money printing), gold prices fall.
This Time Is Different
There are two new factors this time:
1. Price Drop Before Hike: Historically, bear markets started after clear interest rate hikes by the Fed, but this time, even though only 9 out of 18 Fed officials predicted a hike, prices still dropped significantly.
2. AI Competing for Funds: The rise of AI has diverted investment from gold, while central banks (such as China and Russia) continue to buy gold, providing support.
What About the Future?
To predict future gold prices, watch these three key factors:
1. Fed Interest Rates: If the Fed raises rates before October, prices may fluctuate around $4,100; if not, the pressure will be lower.
2. Geopolitics and Economy: Conflicts or economic downturns could drive demand for gold as a safe-haven, while positive trends would push prices down.
3. AI Market: If AI stocks continue to perform well, funds may remain drawn away from gold; if the AI sector cools down, investment might flow back into gold.
In summary, gold prices may experience short-term volatility, but central bank purchases and safe-haven demand will likely prevent a prolonged bear market like in the past.