After a 20% plunge in gold: Is this a deep correction in the bull market or a trend reversal?

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Reporter | Zhang Yinuo

On March 19, Beijing time, gold experienced another sharp correction. The main COMEX gold futures contract repeatedly broke through the $4,800, $4,700, and $4,600 levels within the day, with a low of $4,505 per ounce, down 20% from the record high at the end of January.

Around 14:35 on March 20, Beijing time, the main COMEX gold futures contract rebounded 1.9% from the previous day to $4,692.2 per ounce, but still fell 11.4% compared to the last trading day before the US-Iran conflict.

Since the outbreak of the US-Iran conflict, gold, as a safe-haven asset, has fallen instead of rising, surprising many investors. Analysts point out that the recent sharp decline in gold prices is an inevitable result of rising inflation expectations, profit-taking, and a reconfiguration of safe-haven logic.

“The core trigger for the overnight plunge in gold was the hawkish Federal Reserve decision, which shattered the short-term expectation of rate cuts,” independent economist Liu Weiming told Jiemian News. “As a non-interest-bearing core asset, gold’s pricing anchor is the real interest rate of the dollar and the Federal Reserve’s monetary policy cycle. Market expectations of continuous rate cuts by the Fed in 2026 have been a key support for this gold bull market.”

However, in the early hours of Thursday Beijing time, Federal Reserve Chair Jerome Powell’s unexpectedly hawkish stance directly cut off this support.

On that day, the Fed announced it would keep the federal funds rate in the range of 3.50%-3.75%, with only one rate cut expected this year according to the dot plot. Although the median number of rate cuts in the dot plot remained the same as December last year, among the 19 FOMC members, 7 do not expect any rate cuts this year, an increase of one from December.

Powell explicitly stated at the press conference that he would not consider rate cuts until inflation shows signs of cooling. He also mentioned that the FOMC has begun discussing “the next possible rate hike,” although this is not the baseline scenario for most officials.

Liu Tao, senior researcher at the Chief Product Research Institute, told Jiemian News: “The likelihood of the Fed cutting rates in the first half of the year is already low. Whether there will be rate cuts in the second half depends on the progress and impact of the US-Iran conflict.”

In a high-interest-rate cycle, the cost of holding gold has soared. Qu Rui, senior deputy director of the Research and Development Department at Orient Securities, told Jiemian News that after Powell’s statement, market expectations of rate cuts cooled significantly, driving U.S. Treasury yields and the dollar index higher. Coupled with recent liquidity tightening caused by U.S. private credit withdrawals, the dollar’s dual advantage of safe-haven and yield has diverted safe-haven funds, while gold, as a non-interest-bearing asset, faces increasing opportunity costs as U.S. bond yields rise.

In fact, not only the Federal Reserve, but the energy shocks triggered by Middle East conflicts have put global central banks in a dilemma over inflation and economic growth prospects. Major central banks have issued hawkish signals this week.

On Thursday, the Bank of Japan maintained its benchmark interest rate at 0.75% and said that the Middle East situation has made the outlook for monetary policy more complex; the European Central Bank kept rates unchanged, closely monitoring the surge in energy prices and their impact on growth and inflation, and prepared to act if necessary; on the same day, the Bank of England, the Swedish Riksbank, and the Swiss National Bank also kept rates steady, with the Bank of England stating it is ready to “take action” to address inflation.

Analysts say that if the Fed’s decision and Powell’s hawkish stance are the triggers for the sharp decline in gold prices, then profit-taking and the diminishing gold purchases by central banks have become key factors amplifying the plunge.

On one hand, from late July 2025 to late January 2026, COMEX gold prices surged from around $3,400 to $5,600, with institutional and retail investors accumulating huge unrealized gains. After the hawkish Fed decision, programmed stop-loss orders and institutional sell-offs resonated, triggering a “kill all” sell-off, with gold ETF outflows reaching nearly a year’s high and leveraged positions being liquidated rapidly.

Ruo Zhi Heng, chief economist at Yuekai Securities, told Jiemian News that the US-Iran conflict caused a sharp decline in global stock markets, putting enormous forced liquidation pressure on highly leveraged positions. Investors needed to raise funds quickly to meet margin calls. In this context, gold, which had accumulated significant unrealized gains earlier, became the first choice for liquidation. This passive selling to cover stock market margins also put pressure on gold during risk asset declines, showing a short-term positive correlation.

On the other hand, the global central bank gold purchases that once supported gold prices are now clearly weakening. The World Gold Council’s March report shows that in January, global central banks net bought only 5 tons of gold, less than one-fifth of the average monthly purchase of 27 tons in 2025.

Some emerging market countries are even reducing their gold holdings to boost liquidity. On March 4, the Polish central bank proposed to sell part of its gold reserves to raise about $13 billion for defense spending; in February, the Russian central bank announced it sold 300,000 ounces of gold, reducing its total holdings to 74.5 million ounces, the first decrease since October last year.

Compared to discussing why gold prices are falling, investors are more concerned about whether gold can still rise in the future—whether it can rebound to a bull market after the current volatility and bottoming process.

Most opinions see this sharp decline as a deep correction within a bull market rather than a sign of end. In the short term, geopolitical conflicts driving oil prices higher, rising inflation, and monetary tightening are expected to keep gold under pressure; in the long term, normalized geopolitical risks, gradually falling inflation, and non-U.S. central bank gold purchases will support a rebound in gold prices.

Qu Rui believes that the future trend of gold prices will show “short-term pressure, medium- and long-term improvement.” He explained to Jiemian News that in the short term, high oil prices will keep the Fed’s high interest rates and the dollar strong, continuing to suppress gold.

“But if the conflict lasts longer, inflation and economic growth will be more significantly impacted, and market demand for gold will increase,” Qu Rui said. In the medium to long term, as the effect of rising oil prices diminishes and inflation gradually falls, the Fed’s rate hike cycle may be delayed but not absent. Coupled with the ongoing trend of de-dollarization, stable central bank gold demand, and weakening dollar credibility, gold prices are expected to rebound.

Ruo Zhi Heng also said that in the short term, markets will remain highly focused on inflation and global monetary tightening risks, which may keep gold under pressure. However, in the long run, supportive factors for gold include normalized geopolitical risks, strong non-U.S. central bank gold buying, and the potential shift of global economic risks from “inflation” to “stagnation.”

Wang Jun, chief analyst at GreenWave Futures, stated that in the short term, expectations of rate cuts falling and rising inflation exert downward pressure on gold. However, China’s central bank has been increasing its gold holdings for 16 consecutive months, providing a floor for gold prices. In the long term, if Middle East conflicts end and central banks initiate new rate cut cycles, leading to lower real interest rates, combined with global credit restructuring and accelerated de-dollarization, gold prices are likely to rise again.

CITIC Securities’ latest report pointed out that after each Middle East conflict, the medium-term trend of gold prices still depends on dollar credit and liquidity factors. Looking ahead, the continuation of loose liquidity and weakening dollar credit are expected to further push up gold prices.