The Great Gold Sale

For anyone who has watched gold over the past year, the last few months have been jarring. After climbing to a record of roughly USD 5,600 an ounce in January 2026, the metal turned and fell hard, shedding almost 30% of its value and slipping below USD 4,000 by June. Long-time believers were rattled, and the newspapers reached, as they always do, for the word “bubble”. However, before you decide whether to worry, it helps to understand, in plain terms, what actually pushed the price down.

The biggest reason has almost nothing to do with gold itself. It is the US dollar. Gold everywhere is priced in dollars, so the two tend to move like the opposite ends of a seesaw: when the dollar is weak gold looks cheap and rises, and when the dollar is strong gold looks expensive and falls. This year the dollar has been unusually strong, as nervous money around the world rushed into American assets for safety, and gold duly sank on the other end of the seesaw. Very little of the drop had anything to do with gold going wrong; most of it was simply the dollar going up.

There is a second reason, and it explains why the fall was so violent. Most of the gold that trades in London and New York is not really gold; it is paper, a blizzard of contracts and IOUs that merely promise gold. Interestingly, there are far more of these promises floating around than there is metal in any vault. 

To make matters worse, much of the paper gold is actually bought with borrowed money. When the price began to wobble, those borrowed bets had to be sold in a hurry, one forced sale triggering the next, and that stampede turned an ordinary dip into a crash, even though almost no real gold changed hands. Think of it as a run on betting slips rather than a run on the metal.

Gold surged to a January record near $5,600 an ounce, then fell below $4,000 by June. Chart by the author.

This is where China enters, and its role has been formidable. As the selling gathered pace, China's largest banks announced that from late July they would stop letting ordinary savers gamble on paper gold with borrowed money. In the short run that pulled even more speculative cash out of the market and added to the fall. 

But China was not turning against gold. It was doing the opposite. With the very same hand, those banks began encouraging savers to buy real, physical gold instead, and made it cheaper to do so. Beijing was not trying to tank gold. It was clearing out the reckless betting around it and steering its people, quietly, toward owning the real thing, i.e., the hard tangible asset!

Which brings us to the question that actually matters. Is this fall a disaster or an opportunity? For a speculator who borrowed to chase the record high, it has been painful, and no comfort will change that. But for an ordinary saver who thinks in years rather than days, a cheaper gold price is not a catastrophe at all. It may turn out to be a gift.

So, Should You Worry?

The honest answer depends entirely on why you own gold in the first place, and for most people, the answer is a hard one, if you think about long-term gains. Look past the frightening headline number and you find that the forces which have been lifting gold for years are not fading at all. If anything, they are getting stronger.

Consider who was buying while everyone else was panicking. The world’s central banks, the largest and most patient buyers of gold on earth, did not sell into the crash. They kept buying straight through it. China's central bank alone has now added gold to its reserves for 19 months in a row. Gold has climbed for a decade not on fashion or fear but as a direct mirror of how much money the world's governments have been printing, and that printing has not stopped. 

Gold surged to a January record near $5,600 an ounce, then fell below $4,000 by June. Chart by the author.

The chart below shows the link plainly: as Beijing created money, the gold price in its own currency rose almost in lockstep. As China decided to cool its economy as a way to reduce energy demand at a time of war and spiking oil prices, gold fell! The visual below should explain how to forecast gold prices. It is an extremely strong determinant among other determinants. 

Furthermore, something larger is taking shape beneath the noise. China is building, in Hong Kong, a new marketplace where gold can be bought and delivered as real metal, priced in its own currency and beyond the reach of Western markets. 

Meanwhile, in the United States, officials are quietly debating whether to revalue the enormous gold reserves they still record, absurdly, at USD 42 an ounce, a stroke of the pen that would confirm what the market already senses. 

If the two most powerful countries and largest economies on earth both reach for the same metal at the same moment, it tells you where this is heading.

What fell this year was mostly paper. The real gold in the vaults never moved.

To understand why a 30% fall is not the verdict it appears to be, it helps to remember what gold really is. It is not a share and not a bond. It earns nothing and pays nothing. You do not own it to grow rich; you own it the way you own insurance, as protection against the slow erosion of your savings when a currency loses its value. Insurance does not become worthless because your house failed to burn down this year, and gold does not become a bad idea because its price fell for a season.

None of this makes gold a guaranteed winner, and anyone who promises you certainty is selling something. It is volatile, as these past months have shown with a vengeance. It pays you nothing while you hold it, so it costs you when safer savings earn a healthy return. 

In renminbi terms, gold has risen almost exactly in line with the money created by China's central bank. Chart recreated by the author; framework and data from Global Liquidity Indexes.

And its whole case rests on governments continuing to debase their currencies, which a genuine leap in technology and productivity could, in principle, undo.

The real lesson of the crash, then, is not to run from gold but to hold it sensibly. Own it as a long-term cushion rather than a quick bet, in real physical form rather than paper or borrowed money, and in an amount small enough that a sharp fall can never force you to sell in fear. 

For a saver in Bangladesh, where the taka loses a little of its value most years and returns on ordinary savings rarely keep pace with rising prices, this is hardly exotic advice. Gold has been a trusted store of family wealth in this part of the world for generations, and for a sound reason our grandparents grasped instinctively: it sits outside any government's control and outside any bank's promises.

This year's crash did not end the story of gold. It has only made the metal cheaper to buy. The price may well fall further before it turns, and no one can time it to the day. 

But for the patient saver, a falling gold price is not a reason to panic. Patience is key to investing in hard metals.