Gold falls 14% in a single quarter to its worst in 13 years. Sprott strategist: A strong US dollar creates short-term pressure, but in the long run it’s actually a big positive for gold.

International gold prices have been falling steadily since their January record high, plunging further in the second quarter by 14.14%, the worst quarterly performance since 2013. In June, gold settled at $4,008 per ounce, breaking below the $4,000 mark. Higher interest rates, a strong U.S. dollar, and energy-price gains that have lifted the cost of holding gold have clearly put near-term pressure on gold. However, Sprott managing partner and market strategist Paul Wong believes this adjustment does not change gold’s long-term investment logic. The current drawdown has already exceeded the actual increase in the dollar and short-end interest rates, meaning the bearish impact of higher rates and a stronger dollar has largely been digested by the market.
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Table of Contents

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• The paradox of a strong U.S. dollar
• From inflation hedging to reserve assets
• Gold and the U.S. dollar may rise together

Key takeaways

• International gold prices plunged 14.14% in the second quarter, the worst quarterly performance since 2013. In June, gold settled at $4,008 per ounce, breaking below the $4,000 mark, marking four straight months of declines
• Sprott strategist Paul Wong believes gold’s price drop has already exceeded the actual rise in the dollar and short-end interest rates, so the bearish impact of higher rates and a strong dollar has largely been absorbed by the market
• Paul Wong points out that a strong U.S. dollar suppresses gold in the short term, but in the long run it actually boosts incentives for countries to seek alternatives to holding dollar-based reserves. Gold is evolving from an inflation-hedging tool into a neutral reserve asset

What has fallen is the price; what has not fallen is the narrative. Since the international gold price retreated from its January record high, the second quarter saw a 14.14% quarter-on-quarter plunge—the worst quarter since the second quarter of 2013. Just in June, spot gold fell by $532.24, settling at $4,008 per ounce and breaking below the $4,000 mark for the fourth consecutive month of losses. Higher interest rates, a strong U.S. dollar, and rising energy prices have also increased the cost of holding gold, putting near-term pressure squarely on the charts.

But the view offered by Paul Wong, managing partner at Sprott and market strategist, is that the bad news has already been consumed to a large extent. He analyzes that the recent decline in gold prices mainly reflects three overlapping forces: the U.S. dollar’s strength, rising expectations for Federal Reserve rate hikes, and concentrated positioning unwind by quantitative funds. And the current extent of gold’s drop has already clearly exceeded how much the actual rise in the dollar and short-end interest rates has pushed up. In other words, the bad signals from higher rates and a stronger dollar have essentially already been priced in.

The paradox of a strong U.S. dollar

Paul Wong throws out a seemingly contradictory perspective: While a stronger U.S. dollar in the short term does suppress gold’s spot price, when you stretch the time horizon longer, the stronger the dollar becomes, the greater the global incentive to seek alternative reserve assets to the dollar—which actually adds to rather than detracts from gold’s strategic role as a “neutral reserve asset.”

A stronger U.S. dollar in the short term often suppresses gold, but in the long run, the stronger the dollar is, the greater the global incentive to seek alternative reserve assets to the dollar, which in turn helps enhance gold’s strategic position as a neutral reserve asset.

This sentence pinpoints where the market is most likely to misunderstand. On the trading screen, the dollar and gold appear to be enemies: one rises and the other must fall. But at the reserve-asset level, a strong dollar is precisely the reason central banks want to diversify risk and increase their holdings of gold.

From inflation hedging to reserve assets

Within Paul Wong’s framework, gold’s role is being upgraded. As global fiscal deficits widen, central banks continue adding gold, and geopolitical fragmentation intensifies, gold is gradually evolving from a simple “inflation hedging tool” into currency hedging, reserve assets, and even potential international financial collateral.

Paul Wong noted in his latest monthly report that gold’s share of global reserves has already surpassed that of the U.S. dollar, reclaiming the top seat among neutral reserve assets. What underpins the market is strong central bank buying, as well as loosening confidence among countries in the dollar system.

Gold and the U.S. dollar may rise together

Following this logic, Paul Wong believes that in the future, gold and the U.S. dollar could rise together for different reasons over the long term: the U.S. dollar benefits from its core role in the global financing system, while gold benefits from the trend toward diversification of global reserve assets. They may take different paths, yet they could both move higher at the same time.

However, he also reminds investors to zoom back out to the cyclical level: gold prices still tend to maintain a negative correlation with the U.S. Dollar Index. That means long-term structural positives will not erase short-term price volatility. Investors should clearly distinguish which part of the cycle they are looking at.

The above is not investment advice.

Frequently asked questions

Why has gold in 2026 fallen sharply from its record high?

International gold prices plunged 14.14% in the second quarter, the worst quarterly performance since 2013. In June, gold broke below $4,000 per ounce. The main drivers were rising expectations for Federal Reserve rate hikes, a stronger dollar lifting U.S. Treasury yields, higher energy prices increasing holding costs, and concentrated position closing by quantitative funds.

Is a strong U.S. dollar for gold ultimately a positive or a negative?

Sprott strategist Paul Wong says you have to separate the short term from the long term. In the short term, a strong U.S. dollar suppresses gold; the two show a negative correlation on the charts. But in the long run, the stronger the dollar is, the greater the incentive for countries to seek alternatives to dollar-denominated reserves, which in turn raises gold’s strategic position as a neutral reserve asset.