Why has gold, which has been rising for three years, stopped going up? [Cheng Tan Talks Episode 1]

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Introduction of Guest Teachers in This Section:

Recent Gold Performance: From Independent Movement Back to Cyclical Pricing

Hello friends of Wallstreetcn. Today, let’s have a good chat about gold. I wonder if anyone has noticed, since March 2026, gold’s performance has been rather disappointing. Calculated out, it’s already down about 13%-15%. In March, oil prices rose sharply, interest rate hike expectations heated up, so gold declined—still reasonable. But since May, oil prices have fluctuated down from highs, yet gold hasn’t had any decent rebound, just kept falling.
Even more interesting, gold in 2025 was a completely different story—it broke out in an “anti-gravity” independent movement, almost completely decoupled from real interest rates. But by 2026, gold suddenly went back to being the “obedient kid,” moving with the cycle; each uptick in real interest rates sent gold lower.
In the past three months, global gold ETFs have seen outflows of 70-80 tonnes, becoming the main force dragging gold prices down. There’s also a rumor in the market that central banks are systematically selling gold. Is this true?
The fiscal worries and concerns about the Fed’s independence that pushed gold higher in 2025—why do they suddenly not matter in 2026? What is the market waiting for? Can gold return to a rising trend?
This episode, I will break down these questions for you and help you assess if gold is still worth allocating to now.
Since March 2026, gold has dropped 13%-15%. The rise in oil prices in March triggered heightened rate hike expectations, making gold’s fall expected. But since May, oil has weakened, yet gold hasn’t rebounded, continuing its disappointing performance.
In 2025, gold’s correlation with real interest rates was especially weak, staging a thoroughly independent rally. In the first half, real interest rates trended down while gold rose; in the second half, real rates started rising, but gold kept rising, spawning the “gold defies gravity” joke.
But since March 2026, things have changed completely. The negative correlation between gold and real rates has strengthened again: every real rate hike brings a notable gold decline. In short, the market has switched from a grand narrative logic in 2025 back to cyclical pricing mode.

Funds: ETF Net Outflows Are the Real Cause of the Drop

Looking at the capital side, the hardest hit to gold in the past three months is the net outflow from ETFs. Early in 2026, gold ETFs in Asia, Europe, and North America were all in net inflow. After March, Asia and Europe inflows stopped, and North America turned sharply to net outflow.
Calculating it, over the past three months, global gold ETFs saw outflows totaling 70-80 tonnes, contributing roughly 4-5 percentage points to gold’s decline since March. The remaining 3-4 points are dragged down by rising real interest rates.

A comparison with 2025 makes it even clearer. Last year, global gold ETFs saw inflows of 800 tonnes; Asia alone had 200 tonnes, hitting a historic high, and Europe/North America were nearly as high as during the onset of the pandemic in 2020. Simply put, last year’s gold rally was mainly driven by ETF inflows. This year not only is there no inflow, but it’s flowing out—no wonder prices aren’t doing well.

Central Banks Are Not Systematically Selling Gold

Recently, there’s a market rumor that central banks are systematically dumping gold—this doesn’t hold up.
First, the IMF IFS official reserve data relies on self-reporting by countries, which can result in underreporting or misreporting and overall underestimates central banks’ actual gold purchases. The World Gold Council’s GDT methodology combines self-reports with third-party import/export estimates for more accuracy. Under this method, global central banks bought 244 tonnes of gold in Q1 2026, which is a big difference from the near-zero growth in the IFS data.
Second, even just using the IFS data, only Russia and Turkey are actually selling gold, and it’s not trending. Russia sold only about 6 tonnes a month from Feb-Apr 2026, negligible compared to the nearly hundred-ton ETF outflows. Turkey reduced holdings by 128 tonnes in March but increased by 38 tonnes in April—very volatile, with no sign of sustained selling.
Moreover, most central banks hold gold far below the global average, many even below 10%. As long as they need diversified reserves, they have reason to keep buying.

Grand Narratives Lost Their Catalysts, Funds Naturally Left

So why did ETFs frantically buy gold last year, but suddenly start selling this year? The root cause is, the grand narratives supporting gold in 2025 had concrete events constantly driving them, but in 2026 nothing’s happening—so capital lost interest.
Gold’s two strongest upswings in 2025 were in April-May and September-October, each paired with huge ETF inflows. The April-May wave: the market worried Trump’s return would bring fiscal tightening, but the “Great America Act” draft revealed otherwise—fiscally much looser, adding $300–400 billion deficit per year. This stoked market fears about US fiscal sustainability, sending treasury yields and gold soaring.
The September-October wave was even more direct: Trump threatened to fire Fed Chair Powell and sue Lisa Cook, pushing concerns about the Fed’s independence to the peak, causing gold to surge again. By 2026, the fiscal, Fed independence, and Trump policy uncertainty issues remain, but nothing is triggering them.

On the fiscal side, the new budget resolution passed by Congress in late April 2026 only adds $1.4 billion deficit per year—a drop in the bucket compared to last year’s $300–400 billion from the Great America Act. Both chambers are afraid that Trump’s tariff policies might face legal challenges, and when tariffs don’t come in, the deficit could be much larger. As a result, plans for corporate tax cuts and tariff dividends to the public will not materialize, so fiscal sustainability is off the table. On the Fed side, Trump picked the relatively independent, hawkish Kevin Walsh as Chairman, which reassured the market. As of June 2026, Walsh hasn’t made any clear policy statements; nothing in his hearings or inauguration speech indicates his dovishness or hawkishness, so the market can’t reprice Fed independence.
Trump himself is more reliable than last year. Though the March attack on Iran didn’t succeed in retrospect, at least he didn’t rashly send ground troops—instead, he used economic sanctions and hard bargaining to control market impact at a low cost. Choosing Walsh for the Fed was also seen as a rational pick.
Metaphorically, America’s fiscal imbalance and geopolitical chess are like chronic heart disease—always present but not always flaring up. Last year’s Great America Act and firing of Fed directors were acute flare-ups forcing the market to face risks and rush into gold. This year, it hasn't flared up—so the market selectively forgets about the risks, but absence of episodes doesn’t mean the disease is cured. Next time there’s a trigger, capital will return.

Gold and Tech Stocks Are Both “Waiting for the Wind”

Gold’s current predicament is almost identical to tech stocks from Q4 2025 to Q1 2026, both “waiting for the wind” with a grand narrative backdrop.
Both tech stocks and gold have grand narratives supporting their rallies: tech stocks ride “AI changing the world,” gold bets on “geopolitical conflicts, fiscal deterioration, and a century-long de-fiat shift.” But which one outperforms at any given time hinges on who can show real “evidence.”
For tech stocks, that “evidence” is earnings. In Q3–Q4 2025 US stock earnings were mediocre, Nasdaq moved sideways, and even fell sharply in Q1 2026 amid talk of an AI bubble popping. But after Q1 2026 earnings came out, the S&P 500 IT sector exploded, 1-year forward EPS growth expectations soared to 60%, and funds rushed back in, lifting global tech stocks.
For gold, the “evidence” is new fiscal stimulus bills or actual events weakening Fed independence. Nothing’s happened in 2026 so far, so attention and prices have dropped accordingly.

Where Will Gold Head? Short-Term Depends on Walsh, Long-Term on Narratives

In the short term, the most important event is the Fed’s FOMC press conference in June 2026—Kevin Walsh’s first as Chair. The market will parse every word, judging the new Fed’s independence.
If Walsh gives any clear dovish signal, or is seen as “dovish for dovishness’ sake,” worries about Fed independence will return, giving gold fresh momentum. If he’s strictly hawkish, then gold shouldn’t expect grand narratives to save it in H2 2026. At that point, global moderate recovery, high rates, a strong dollar—all cyclical factors will keep gold under pressure.
Fortunately, central bank gold buying is still a backstop, so gold probably won’t collapse, but more likely grind lower.
Long-term, the debt problem, inflation risk, and major power rivalry all remain and support gold’s bullish trend. Gold continues to hedge against the “once in a century upheaval,” and is still among the best tools to guard against US equity/bond/currency volatility or an AI bubble bust over the next three years.
If your concern is short-term (within six months), you can be a bit cautious and don’t rush to bottom-fish. Wait for clear signals, then make your move—it won't be too late.

“Cheng Tan Says” 2026 Annual Column Plan

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