Gold's largest single-week decline in nearly 43 years, is the "investment myth" over?

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The global precious metals market has experienced a fierce downturn. This week, international gold prices suffered an epic crash, marking the largest weekly decline in nearly 43 years since March 1983. The previously strong upward trend has come to an end, drawing intense attention from global financial markets.

Wind data shows that spot gold prices fell a total of 10.49% this week, closing at $4,491.67 per ounce. The price repeatedly broke through several key psychological levels, temporarily losing its safe-haven halo, and the market’s bullish and bearish structures have undergone drastic reshaping.

Analysis of the causes behind this gold price plunge

In addition to spot gold, Wind data also indicates that COMEX gold futures declined by a total of 11.26% this week, closing at $4,492 per ounce.

The retail market for gold jewelry also declined simultaneously, with major brands like Chow Tai Fook, Chow Sang Sang, Lao Miao Gold, and Luk Fook Jewelry all lowering their retail gold prices. According to Gold Price Query, as of March 21, Chow Tai Fook’s retail gold price dropped to 1,397 yuan per gram, down from 1,557 yuan per gram on March 15, a decrease of 160 yuan per gram.

It is important to note that although this weekly decline in spot gold prices is severe, it has not yet reached historical extremes. Data from Investing.com shows that in 1983, international gold prices experienced an even larger single-week decline.

Nankai University finance professor Tian Lihui told CGTN Finance that the 1983 gold price plunge was caused by oil-producing countries selling gold to exchange for foreign currency amid falling oil prices, representing a supply-side shock. In contrast, this round of sharp decline is mainly due to the Federal Reserve’s expectations management leading to a sudden rise in the cost of holding gold, fundamentally a demand-side collapse. Moreover, today’s gold market is dominated by derivatives such as ETFs, futures options, and swaps, with algorithmic trading and programmed stop-loss mechanisms further amplifying price volatility, causing short-term deviations from fundamentals to far exceed previous levels.

Tian Lihui emphasized that the commonality between the two major declines is that short-term gold pricing anchors are never risk sentiment, but rather real interest rates and the dollar’s trend. This crash is both a correction of overly crowded “rate cut trades” and a rational return to the real interest rate environment.

He further analyzed that gold is not a “one-way rising” investment myth; its price movements are driven by a combination of real interest rates, dollar credit, and risk sentiment. Excessive pricing based on any single logic will ultimately revert to equilibrium. The surface cause of this week’s gold plunge is the delayed expectation of Fed rate cuts, forcing the market to reassess the path of real interest rates; deeper down, it reflects a fundamental shift in gold’s pricing logic—geopolitical safe-haven logic giving way to inflation trading logic. Rising oil prices boost inflation expectations, prompting funds to flow out of non-yielding assets like gold into dollars and U.S. Treasuries, ultimately triggering a stampede-like sell-off.

Wind data shows that spot gold prices once surged to a high of $5,598.75 per ounce on January 29 this year, a 72.45% increase over the close on June 30, 2025, in just over half a year. However, since early March, spot gold prices have generally trended downward amid changing geopolitical circumstances.

Spot gold price trend. Source: Wind

Yang Delong, Chief Economist at Qianhai Kaiyuan Fund, told CGTN Finance that traditionally, geopolitical conflicts tend to boost investors’ risk aversion, and gold, as a classic safe-haven asset, usually attracts funds. However, during this Middle East conflict, the market behaved quite differently. The reasons include Iran’s blockade of the Strait of Hormuz, which caused international oil prices to spike sharply, reaching $119 per barrel and fueling inflation expectations globally. In this context, the Federal Reserve was forced to delay rate cuts, with expectations of no rate cuts this year gradually strengthening, which is a significant negative for non-yielding assets like gold. Additionally, some institutions faced liquidity pressures due to falling asset prices and sold gold holdings to raise funds, further accelerating the decline in gold prices.

Despite recent large fluctuations in international crude oil prices, they have still increased significantly compared to late February. Data from Tonghuashun shows that as of March 21, Brent crude (BRNOY) stood at $109.55 per barrel, up 49.63% from the end of February.

Brent crude oil continuous contract BRNOY recent trend. Source: Tonghuashun

Liu Zhigeng, a renowned tax and finance expert, analyzed that the strong dollar index, which rose above 100 and hit a 1.5-year high, further created a negative correlation with gold—“dollar up, gold down.” Funds did not flow into gold during the crisis but into the most liquid assets—dollars and U.S. Treasuries—forming the so-called “dollar safe-haven siphon,” indicating that under extreme macro pressures, gold’s safe-haven function is temporarily overshadowed by liquidity needs.

What about the future trend of gold?

Several experts have made preliminary predictions on gold’s future price movements:

Tian Lihui said that in the short term, technical overselling may trigger a temporary rebound, but a trend reversal remains uncertain. If the $4,500 key level is broken, the next support zone will be between $4,200 and $4,300, corresponding to the dense trading area since Q3 2024. Potential catalysts for a rebound include: 1) signals of a dovish shift from the Fed; 2) changes in geopolitical conflicts; 3) a sharp correction in U.S. tech stocks leading to a reassessment of market risk appetite. In the medium term, gold prices will be anchored to the trend of real interest rates. If U.S. economic data remains strong and rate cut expectations are further delayed, with real interest rates staying high, gold will remain under pressure. Conversely, signs of recession could push the Fed toward easing monetary policy, lowering real interest rates and opening upward space for gold. In short, the medium-term trend depends on the timing of Fed policy shifts and the pace of geopolitical developments.

For ordinary investors, Tian emphasizes that gold’s core value lies in its role as a “stabilizer” in asset allocation. He recommends long-term investors adopt a “staged deployment and position control” strategy to cope with market volatility, avoiding chasing highs and selling lows. Gold investment is about long-term strategic discipline, not short-term speculation.

Liu Zhigeng said that the recent decline in gold prices is not due to a collapse in fundamentals but results from intense battles among interest rate expectations, geopolitical risks, and liquidity. Similar to 1983, gold is experiencing a “safe-haven failure” pain period, but compared to then, the current bottom support is more solid. He predicts that gold’s future will show “short-term pressure, medium-term divergence, and long-term optimism.” The long-term positive logic is that gold is not only a commodity or financial asset but also a “pressure gauge” of the global monetary credit system. Amid high global debt, ongoing geopolitical turmoil, and shaken currency trust, gold’s strategic value is increasingly prominent.

Yang Delong believes that under the backdrop of de-dollarization in many countries, high U.S. government debt, and continued easing of dollar liquidity, the long-term upward trend of international gold prices will not change and may even reach new historical highs. However, in the short term, the magnitude and speed of this week’s decline exceeded market expectations, so investors should remain cautious of short-term corrections. He also pointed out that every major decline is often a good opportunity to accumulate gold. Over the past two years, he has consistently recommended that investors allocate 20% of their assets to gold, a strategy that remains effective. Fundamentally, holding gold can effectively hedge against the devaluation of fiat currencies and asset depreciation.

Lü Suiqi, retired associate professor at Peking University’s School of Economics, predicts that the underlying fundamentals affecting gold have not changed. Short-term structural shifts may lead to market adjustments, but the long-term outlook for gold remains cautiously optimistic.