Since minting a fresh all-time high in early January 2026 of $5,340 per troy ounce the gold price has fallen 18.5%. In doing so it is toying with bear market territory, generally defined as a 20% drop from the most recent peak.
Despite the war in the Middle East, an event which might normally be expected to see gold’s safe haven credentials in demand, prices fell as investors grabbed an opportunity to lock in profits after a strong run.
Profit taking was also seen in silver which experienced an even stronger run up buoyed by its use in the AI hardware infrastructure buildout.
The falling gold price has changed sentiment in the analyst community with a recent Kitco survey showing eleven out of 15 analysts projecting further declines for the yellow metal.
Retail investors, on the other hand are seemingly happy to take the other side with nearly half of the 49 respondents expecting a rebound in gold versus 18 anticipating more losses.
Is selling momentum running out of steam?
A different take on market sentiment is provided by looking at open interest which represents the number of open derivative contracts, which are bets on the future price of gold.
When a new trader buys a fresh contract open interest goes up and when a trader exits an existing position, open interest goes down. In general, rising/falling prices and increasing open interest is supportive of a trend continuing.
But when prices are rising/falling and open interest is shrinking, it suggests the trend is running out of steam.
Open interest recently dropped to the lowest level since 2009, suggesting derivative bets on continued gold weakness are dwindling.
This sets up an intriguing juncture for gold with competing forces pulling the price in different directions.
Central banks are still buying
After accumulating a further 863 tonnes in 2025 central bank’s appetite for gold remains undimmed with China racking up 18 consecutive months of purchases through April 2026.
However, some of that physical demand is being partially offset by global ETF outflows which have totalled $2 billion in the first five months of the year with Asia seeing selling for the first time since August 2025.
Why the strong May US jobs report could dampen demand
Gold suffered its sharpest weekly drop in the first week of June which was triggered by an unambiguously strong US non-farm payrolls report on 5 June.
The Bureau of Labour Statistics reported 172,000 new jobs were created in May which was double the consensus economist estimate while the prior month was revised substantially higher to 179,000.
The jobs report extinguished any lingering investor hopes for rate cuts with markets immediately pricing in more than a two-thirds chance of a rate hike by year end, which in turn, pushed up bond yields.
Rising interest rates mean investors can earn higher returns from cash, savings accounts and government bonds without taking on the market risk associated with gold.
This is a problem for gold because it is a non-yielding asset. Not only that, but it also costs money to store gold safely, which means it is effectively a negatively yielding asset.
A secondary effect saw the US dollar increase against a basket of major currencies as market price4s reflected higher for longer interest rates in the US compared with Europe and the UK.
When the price of the US dollar increases it makes gold less attractive for non-US buyers who must pay more. Therefore, a rising dollar puts pressure on gold while a falling dollar is generally supportive.
Bitcoin fails to provide protection
Some investors have argued Bitcoin is like a digital version of gold because of its scarcity value and portability. Supporters argue that Bitcoin’s fixed 21-million coins should provide purchasing power once all coins have been mined given the lack of new supply.
However, since scaling new all-time highs around $125,000 in October 2025, the price of Bitcoin has halved, triggered by ETF outflows as investors flock to AI stocks.
This suggests that in practice Bitcoin fails to protect investors from increased market turmoil.
Martin Gamble: Shares and Markets Writer
Martin Gamble is Shares and Markets writer at AJ Bell. He was previously the Education Editor of Shares Magazine. He has been with the business since 2019.
Martin graduated from the University of Kent in...
