Why is gold falling? The three-way game among central bank gold purchases in 2026, interest rate hike expectations, and geopolitical tensions

June 10, 2026, international gold prices continued their recent decline. According to Gate market data, gold prices have experienced significant volatility over the past few months. London spot gold prices briefly hit a historic high of $5,598.75 per ounce at the beginning of the year, but since June, they have been steadily declining, falling below the $4,200 mark.

This price trajectory has sparked widespread market discussion: against the backdrop of inflation pressures, geopolitical conflicts, and central bank gold purchases, how is the driving logic of gold prices changing? Are cryptocurrencies like Bitcoin diverting traditional safe-haven funds?

What are the core drivers behind the current retracement in gold prices

The immediate trigger for this round of gold price correction is a fundamental revision of market expectations regarding Federal Reserve monetary policy. After the January 2026 Fed meeting, the market's focus was still on several rate cuts within the year; by June, the trading focus had shifted to how many basis points the Fed might raise interest rates.

This reversal of expectations stems from continued better-than-expected US economic data. In May, non-farm employment data far exceeded expectations, combined with rising inflation readings—market expectations for the May overall CPI year-over-year might rise from 3.8% to 4.2%—further strengthening the case for the Fed to tighten monetary policy. CME Fed Watch data shows that the market's probability of a rate hike in October has risen to 42.0%, and the December rate hike probability has increased to 42.7%, whereas at the beginning of the year, the market generally expected rate cuts within the year.

For gold, rising rate hike expectations mean increasing opportunity costs of holding gold. As a non-yielding asset, gold is under obvious pressure in an environment where real US Treasury yields are rising. On February 27, 2026, the real yield on 10-year US Treasuries fell to a low of 1.72% for the year, at which point gold prices were high; subsequently, real yields oscillated upward, and gold entered a downtrend.

Meanwhile, the risk transmission pathway of Middle East geopolitical conflicts has also changed. Since the outbreak of US-Israel-Iran tensions at the end of February, geopolitical turmoil has not traditionally pushed gold prices higher; instead, spillover effects have driven energy prices and inflation expectations higher, further emphasizing the urgency of Fed rate hikes. Huatai Securities analysts pointed out that, compared to gold, assets with stronger demand rigidity and tangible attributes like oil have become hot spots for capital chasing, while some oil-exporting countries, facing tighter cash flows, have reduced holdings of previously profitable gold positions, further increasing downward pressure on gold prices.

How macro liquidity reversal is reshaping gold pricing logic

Entering the second quarter of 2026, the gold market has undergone a significant shift in its pricing logic. The previous "inflation—loose policy" narrative is being replaced by an "inflation—rate hikes" narrative.

The negative correlation between gold and real interest rates has been re-established in this process. From the beginning of the year to February, gold prices and real yields once moved in the same direction, causing a short-term failure of traditional pricing anchors; but since the appointment of the new Fed Chair on January 30, the two have reverted to the standard inverse relationship. This indicates that the intrinsic nature of gold as a non-yielding asset is once again dominating its pricing.

The impact on liquidity should not be overlooked either. After the release of non-farm payroll data on June 5, nearly all assets—US stocks, US bonds, gold, Bitcoin—were sold off indiscriminately, while the US dollar index rose above 100. For assets like Bitcoin, which have absorbed substantial liquidity, and for well-liquid assets like gold, any reversal of monetary easing expectations can trigger sharp asset price adjustments. Analysts note that, under conditions of relatively limited liquidity expansion, liquidity realization has become the main means for market risk mitigation.

Additionally, the continued outflow from gold ETFs reflects a shift in speculative sentiment. Since March, global gold ETFs have been steadily flowing out, and the short-term momentum for gold to rise has been lacking. The outflow of speculative funds, combined with rising rate hike expectations, creates a self-reinforcing feedback loop that exerts ongoing technical pressure on gold prices. Industry insiders suggest that for gold prices to resume an upward trend, ETF inflows need to restart, and market concerns about Fed rate hikes need to ease.

Can central bank gold purchases sustain a price bottom for gold

Against the backdrop of ongoing price corrections, the gold buying behavior of global central banks has become a focal point. According to data released by the People's Bank of China on June 7, as of the end of May, China’s gold reserves reached 74.96 million ounces, an increase of 320k ounces from April, marking the largest monthly increase since 2025. This is China’s 19th consecutive month of gold accumulation, with a total increase of 2.16 million ounces in this round.

Looking at the pace of accumulation, central bank gold buying is not very sensitive to price movements. From November 2024 to February 2025, there was a rapid purchase phase, with monthly increases of about 160k ounces; from March 2025 to February 2026, as gold prices surged, the pace slowed temporarily; but since March 2026, with gold prices retracing, the pace of accumulation has accelerated again, reaching 160k, 260k, and 320k ounces in March, April, and May respectively.

From a global perspective, the status of gold within official reserves is undergoing a structural leap. The latest report from the European Central Bank shows that by the end of 2025, gold’s share of global central bank reserves had risen to 27%, officially surpassing US Treasuries (at 22%) to become the largest reserve asset worldwide. This shift reveals profound changes occurring in the global monetary system.

Industry analysts generally believe that once central banks incorporate gold into their reserve strategies, such allocations tend to last for years or even decades. The sustained accumulation by countries like China, Poland, and India is not short-term trading but a long-term asset allocation adjustment. Hu'an Fund notes that the core long-term factors supporting gold—such as the global "de-dollarization" trend driving central bank gold demand, the long-term erosion of US dollar credibility due to US fiscal deficits, and gold’s role as a non-sovereign credit hedge—have not changed despite recent price corrections. Huatai Securities believes that, in the short term, gold prices may still face pressure, but with ongoing central bank support, a price floor remains.

Do the safe-haven narratives of gold and cryptocurrencies show structural divergence

Discussions about the safe-haven status of gold and Bitcoin have taken on new dimensions in 2026.

A noteworthy data point is that the correlation between gold and stock markets is rising. Economists point out that in 2026, the correlation between gold and the S&P 500 has climbed above 0.50, roughly comparable to the correlation between Bitcoin and equities at 0.55 from late 2025 to early 2026. This indicates that, in a macro environment of tightening liquidity, both gold and Bitcoin have failed to demonstrate traditional risk diversification—when markets panic due to rate hike expectations, both are sold off simultaneously.

In terms of recent market performance, gold’s defensive holdings in June 2026 outperformed Bitcoin and Ethereum. But this more reflects differences in volatility rather than a clear indication of superior safe-haven qualities.

Analysts believe that institutional funds are the key drivers of market trends. From a risk management perspective, gold, backed by thousands of years of credit and relatively low volatility, remains a standard hedging tool; Bitcoin’s high volatility makes it less suitable for large-scale safe-haven needs but still attracts some investors with higher risk appetites seeking alternative assets.

Meanwhile, the series of positive policies implemented by the Trump administration since 2025 have somewhat weakened the narrative that Bitcoin and gold are similar safe havens. At the structural level of market participation, institutional investor involvement in crypto has continued to rise. Bernstein’s latest view suggests that, after retail enthusiasm waned, participation by pension funds, sovereign wealth funds, asset managers, and corporations has significantly increased. Since 2026, net ETF inflows have totaled about $12 billion, lower than the $60 billion in the same period of 2025, but still reflecting a long-term institutional allocation interest in crypto assets.

From a broader asset allocation perspective, gold and Bitcoin are not simply competitors or substitutes. Their risk-return profiles differ markedly, playing different roles in diversified portfolios: gold as a lower-volatility hedge, Bitcoin as a high-growth alternative asset. When macro liquidity conditions change, their pricing logic may converge temporarily, but their structural support factors differ, leading to fundamentally different long-term trajectories.

Possible frameworks for the future path of gold

Based on the current market landscape, the future direction of gold prices can be analyzed through two different frameworks.

Framework 1: Liquidity-driven

In this framework, the Federal Reserve’s monetary policy path is the core variable for gold pricing. If inflation data remains persistently above expectations, rate hike expectations will intensify, and a stronger dollar along with rising US bond yields will exert sustained pressure on gold. CME Fed Watch data shows the probability of a rate hike in October has risen to 42.0%; if this expectation materializes further, gold could face a prolonged downward pressure.

JPMorgan has lowered its target price for gold over the next three months from $4,300 to $4,000 per ounce but maintains a 6- to 12-month target of $4,500. This adjustment reflects that global financial markets are in a transitional phase, caught between monetary policy, inflation, geopolitical, and fiscal risks.

Framework 2: Structural support

In this framework, gold’s medium- to long-term value is supported by three irreversible structural trends:

1. The underlying logic of global "de-dollarization." Gold replacing US Treasuries as the largest official reserve asset signals a profound restructuring of the global reserve system. This trend will not reverse due to short-term gold price fluctuations.

2. The sustained and systemic central bank gold purchases. China’s central bank has accumulated gold for 19 consecutive months, with the pace accelerating after price retracements, increasing from 160k ounces to 320k ounces monthly. This price-insensitive behavior provides a bottom support for gold.

3. The long-term rise of sovereign credit risk. Persistent US fiscal deficits erode dollar credibility, and gold’s role as a non-sovereign credit hedge becomes more prominent amid rising global fiscal risks.

The divergence between these frameworks lies in their time horizon emphasis: short-term liquidity expectations dominate pricing, exerting downward pressure; whereas long-term structural demand offers bottom support. This suggests that in 2026, gold’s price may fluctuate within a range, with the direction depending on the tug-of-war between Fed policy and global central bank gold accumulation.

Summary

In the first half of 2026, gold prices experienced a sharp correction from a historic high of $5,598.75 per ounce to below $4,200, with a nearly 20% decline year-to-date. The core driver of this correction is a fundamental reversal in market expectations of Fed monetary policy—from early-year rate cut expectations to current rate hike expectations—significantly raising the opportunity cost of holding gold as US real yields rise.

Meanwhile, the pricing logic of the gold market is reverting to traditional relationships: the negative correlation with real interest rates is reasserted, asset correlations increase during liquidity tightening, and the safe-haven function is temporarily weakened amid inflation transmission.

However, beneath the short-term pressure, the structural support factors for gold remain intact. Continuous central bank purchases for 19 months, gold surpassing US Treasuries as the top global reserve asset, and the deepening "de-dollarization" trend collectively underpin the gold price floor. JPMorgan expects gold to potentially rebound to around $4,500 in the next 6 to 12 months.

Regarding the relationship between gold and cryptocurrencies, both face liquidity tightening in the current macro environment, but their structural logic differs fundamentally. Gold relies on the restructuring of the official reserve system, while assets like Bitcoin depend on increasing institutional adoption and the ongoing expansion of the digital economy. In a diversified asset allocation framework, both can coexist, playing different roles: gold as a low-volatility hedge, Bitcoin as a high-growth alternative. Their short-term convergence may occur during macro shifts, but their long-term paths are driven by distinct structural factors.

Frequently Asked Questions (FAQ)

Q: What is the main reason for the sharp correction in gold prices in 2026?

A: The core reason is a fundamental shift in market expectations of Fed monetary policy—from early-year expectations of rate cuts to current expectations of rate hikes. Rising US real yields significantly increase the opportunity cost of holding gold. Additionally, the US-Israel-Iran conflict has pushed energy prices and inflation expectations higher, further reinforcing the case for tightening by the Fed.

Q: Is the Chinese central bank still increasing its gold holdings?

A: Yes. As of the end of May 2026, China’s central bank has accumulated gold for 19 consecutive months, with May’s addition of 320k ounces marking the largest monthly increase since 2025. The total accumulated amount in this cycle has reached 2.16 million ounces.

Q: How do gold and Bitcoin differ in their safe-haven functions?

A: Gold has relatively low volatility, long-standing credit backing, and is a standard risk hedge; Bitcoin’s high volatility makes it less suitable for large-scale safe-haven needs but still attracts investors with higher risk tolerance seeking alternative assets. In the current liquidity-tight environment, their correlations have increased, and both face some short-term safe-haven limitations.

Q: Can central bank gold purchases support a price bottom for gold?

A: Central bank gold buying provides a bottom support, but short-term prices are still dominated by macro liquidity expectations. While the core long-term factors supporting gold remain unchanged, factors like persistent rate hike expectations and ETF outflows continue to exert downward pressure. A sustained upward move in gold prices would require ETF inflows and easing concerns about rate hikes.

Q: How to judge the future trend of gold prices?

A: Two frameworks exist. The short-term view emphasizes the Fed’s policy path—if rate hike expectations persist, gold will remain under pressure. The long-term view considers structural factors like de-dollarization, ongoing central bank gold accumulation, and sovereign credit risks, which provide a price floor. JPMorgan projects gold could rebound to around $4,500 in 6 to 12 months.