#XAU Spot gold surges past $4,600—how should we view the recent trend in gold prices?

The 2026 gold market has been nothing short of a roller coaster, from its frenzied surge at the beginning of the year and deep correction in the middle of the year to its strong recent rebound. How should we understand this market move? Where will gold head in the second half of the year?
I H1 review: sharp surge followed by a deep correction
In the first half of 2026, London spot gold experienced an extreme move, surging first before plunging. Gold prices started the year at around $4,400. In January, prices entered a sharp rally, successively breaking through the $4,600, $5,000, and $5,400 levels before touching a record high of $5,598.75 on January 29, with the largest monthly gain reaching 27%. However, after reaching the record high, gold prices suddenly reversed course, plunging more than $250 that day. Over the following months, gold prices continued to decline, breaking below $5,000 and $4,500 in March and falling below $4,100 in June. In less than six months, gold plunged more than $1,600 from its peak, with a maximum drawdown of approximately 30%. Its 10.45% monthly decline in June was the largest since October 2008.
This dramatic shift between gains and losses represented two sharp reversals in the logic driving gold trading. The rally was driven by the risk-aversion sentiment fueled by Trump at the beginning of his presidency, as well as market expectations that the Federal Reserve would cut rates two or three times during the year. The root cause of the decline was a rapid reversal in that logic. On January 30, Warsh was nominated as Federal Reserve chair, and the market reacted sharply to his hawkish stance, sending gold prices down more than 12% in a single day as rate-cut expectations shifted to rate-hike expectations. After U.S.-Israeli airstrikes on Iran on February 28, inflation expectations surged, the dollar strengthened, and, combined with a liquidity shock and highly crowded gold positions, this triggered a negative spiral of “falling prices—stop-loss selling—tighter liquidity,” accelerating gold’s decline. After Warsh took office in June, his first FOMC meeting sent an unexpectedly hawkish signal, putting further pressure on gold.
II Recent gold performance: a rebound driven by multiple converging factors
Entering the second half of the year, gold’s trend shifted noticeably. Since July 31, spot gold has entered a rebound channel, recording its largest weekly gain of the year in the first week of August and successively breaking through $4,200 and $4,300. On August 5, it jumped 4.16% in a single day, its largest daily gain since February. The rally then accelerated, and on August 19, influenced by news that the U.S. Treasury had announced an expansion of its long-term Treasury buyback program, spot gold surged 4.36% in a single day, breaking through the $4,400 and $4,500 levels during the session. On August 21, spot gold moved above $4,600 per ounce, marking an acceleration in the gold rally.
This rebound resulted from multiple factors converging. First, marginal cooling in the U.S. economy rapidly reduced rate-hike expectations: July nonfarm payrolls unexpectedly fell by 23k, while year-on-year CPI was only 3.4%; the market’s probability of a rate hike in September plunged from 68% to around 30%, directly lifting gold’s valuation. Second, the sharp decline in gold-market crowding provided a technical foundation for the rebound. After the steep correction in the first half of the year, COMEX gold trading volume and open interest both fell to multi-year lows, as large amounts of speculative capital reduced their gold positions, significantly lowering crowding in global gold trading. Meanwhile, continued gold purchases by central banks worldwide provided solid downside support for prices. The latest report from the World Gold Council showed that global central banks and other official institutions collectively increased their gold reserves by 289 tonnes net in the second quarter of 2026, up 62% year on year and 411% quarter on quarter, marking the highest quarterly gold purchase volume in nearly four years.
Another important factor in this gold rebound was the continued widening of the U.S. Treasury term spread. A widening Treasury term spread essentially means that long-end yields are rising faster than short-end yields, increasing the opportunity cost of holding gold. However, the widening spread itself more deeply reflects market concerns about the U.S. government’s fiscal deficit and debt sustainability. Judging from gold’s continued strong break above $4,600 despite elevated long-end yields, its traditional negative correlation with real interest rates is weakening and temporarily shifting toward a credit-hedging dynamic.
III ‌Second-half outlook: choppy recovery, with allocation value becoming more prominent
Major institutions are generally cautiously optimistic about gold’s performance in the second half of the year. Goldman Sachs forecasts that gold could recover to $4,900 by year-end, while JPMorgan also believes gold still has room to rise. However, the path upward will not be smooth; prices are more likely to trade at elevated levels after the center of gravity gradually rises.
On the supportive side, central-bank gold purchases and the dedollarization trend remain intact, while U.S. debt surpassing $40 trillion is weakening confidence in the dollar, and allocation capital may return after gold’s pullback. On the suppressive side, Federal Reserve policy remains uncertain, holding costs are high under elevated interest rates, and another rise in long-end yields would cap gold’s valuation. Easing geopolitical tensions could also weaken safe-haven demand.
It is worth noting that the effectiveness of multi-asset strategies is likely to return in the second half of the year. In the first half, gold and U.S. technology stocks showed a clear “seesaw” effect. From April to May, driven by the rally in U.S. technology stocks, some capital flowed from gold into technology stocks, reducing the hedging efficiency of risk-parity strategies. However, as multiple macro uncertainties and risks converge, the value of diversified allocation across multiple assets and strategies will become more prominent. Gold’s role as a “ballast” in portfolios remains indispensable.
Overall, gold’s long-term allocation value has not been weakened by the first-half correction. Against a backdrop of persistently high macroeconomic uncertainty and a narrative of weakening dollar credibility, gold’s role as a hedge against sovereign credit risk is becoming increasingly prominent, and it will remain an asset that investors cannot overlook in their portfolios. ‌ ‌