As gold approaches a bear market, the bargain hunters are arriving!

After experiencing the largest drop in years, bargain hunters have entered the gold market, temporarily preserving the three-year bull run.

This month, gold prices have cumulatively fallen 15%, with the decline from January’s high touching 19%, approaching the usual 20% threshold that signals the start of a bear market. But a turnaround occurred on Friday—investors re-entered, gold rebounded about 3% that day, and market sentiment improved.

Many in the market continue to believe that the structural logic supporting gold remains unchanged. Fidelity International fund manager George Efstathopoulos said, this pullback is a “buying opportunity,” and “inflation risks, fiscal pressures, and bond credibility issues are still long-term structural tailwinds for gold.”

Max Layton, Citi’s Global Head of Commodities Research, also said on Bloomberg TV that once speculative positions clear out, the bank will be “bullish on gold,” and is “confident” that gold prices will be higher than current levels a year from now.

Reasons for Selling: From Stock-Bond Linkage to Central Bank Offloading

This round of gold price declines originates from the convergence of multiple pressures.

The Iran war triggered broad selloffs across stocks, bonds, and currencies, forcing investors to liquidate gold to cover losses in other assets.

Meanwhile, the conflict drove oil prices higher and pushed up bond yields, lowering the appeal of gold as a non-yielding asset; a sharply stronger dollar put further pressure on investors buying gold with non-dollar currencies.

There are also loosening signals at the central bank level. Turkey sold and swapped more than $8 billion worth of gold within two weeks of the Iran war, to protect the lira exchange rate. This move also hurt market sentiment, as central banks have been the key buyers of gold throughout the bull cycle.

TD Securities commodities strategist Daniel Ghali believes, for now, the trend is more likely to be a gradual slowdown in central bank gold accumulation rather than a shift to net selling.

ETF Exodus: Outflows May Hit Highest Since 2022

Gold ETFs became the focal point for selling pressure during this downturn.

Gold ETFs are favored by both retail and institutional investors. According to Bloomberg estimates, in the past 14 months, gold ETFs had net outflows in just one month. Continuous inflows into the metal accounted for 70% of gold’s price rise during the period.

However, this month ETF fund flows reversed sharply, expected to see the largest single-month net outflow since 2022, erasing all inflows so far this year. ETF investors are especially sensitive to interest rate changes, and today’s high-rate environment is a major drag.

Last week, hedge funds also joined the sellers, cutting net long positions in gold to the lowest level since October last year. However, Robert Minter, ETF Investment Strategy Director at Aberdeen Investments, noted that falling stocks usually only trigger a mild pullback in gold prices at first.

Is Bullish Story Still Intact? Narrative “On Hold” For Now

This bull run began in early 2023, with gold rising nearly 150% to date. Initially, central banks accelerated gold purchases after Russia’s foreign reserves were frozen; then hedge funds followed suit, eventually sparking a wave among retail investors.

The core narrative supporting gold’s rise in 2025 is the so-called “currency devaluation trade”—in short, highly indebted countries like Japan, France, and the US have little fiscal consolidation will after the pandemic, and currency devaluation and inflation will be the only way out, making precious metals the most direct beneficiaries.

Former Brevan Howard and Goldman Sachs FX strategist, now Brookings Institution senior fellow Robin Brooks, admitted he has become a “believer” in this logic, citing the historical correlation between gold and safe haven currencies like the Swiss franc as evidence.

However, the outbreak of the Iran war has temporarily shifted market attention away from debt and fiscal deficit issues. John Reade, World Gold Council Chief Strategist, said:

“People are taking profits because gold’s 2025 narrative has temporarily been shifted to the back burner. But this does not mean those long-term themes have disappeared, only that they are not the most urgent issue right now.”

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