Gold had a spectacular 2025. It was one of the best-performing assets around, soaring to a record high of about $5,600 an ounce in January. Then came the correction—and it's been brutal. Prices have tumbled roughly 29% to below $4,000. The most popular ETF benchmark, SPDR Gold Trust (GLD), is down 8.12% year-to-date. Ouch.
What happened? The main culprit is an inflationary energy shock from the U.S.-Iran war. That forced a swift rethink of the lower-interest-rate expectations that had fueled gold's bull run. Instead of cuts, investors are now facing tighter monetary policy and rapidly shifting sentiment.
Pricing the Fed
Under new Fed Chair Kevin Warsh, policymakers have pivoted from rate cuts to fighting energy inflation. According to the CME FedWatch tool, markets now imply roughly a 70% probability of a rate increase by September and a near-certainty of another move by December.
For a non-yielding asset like gold, that's a double whammy. Higher rates increase opportunity costs, and a stronger U.S. dollar adds more pressure. Both dynamics have pushed bullion prices lower and encouraged investors to reduce exposure through ETFs.
"The shift away from inflationary cuts toward tighter policy is a headwind for gold," Bank of America analysts wrote in a recent note. The bank had previously forecast $6,000 an ounce by next spring—a target that now looks unlikely under current conditions. Analysts argue that gold must first "price out" the expected rate hikes before investment demand can recover.
Deutsche Bank has also turned more cautious. According to Bloomberg, the bank cut its third-quarter gold forecast by 22% to $4,300 an ounce, though that still sits above the current spot price of around $4,000. "Fed repricing, together with resilient U.S. macro data, has played the primary role in pushing gold lower," analyst Michael Hsueh wrote in a Tuesday note. The bank expects a rebound toward $4,800 in the fourth quarter if the Fed pauses after its initial tightening moves. But if three or four hikes materialize, it could drive the price to $3,800 an ounce.
A Hidden Opportunity
Beneath the short-term pessimism, gold's long-term outlook remains constructive. Central bank demand continues to provide a critical foundation for prices. A recent survey showed that nearly three-quarters of reserve managers expect moderate or significant reductions in U.S. dollar holdings over the next five years, reinforcing the broader de-dollarization trend that has been driving official-sector purchases.
The opportunity may be even more pronounced in mining equities. Bank of America's price-to-net-asset-value analysis suggests gold producers are valuing bullion at an average implied price of just $3,354 an ounce—roughly 19% below prevailing spot levels. That's a massive hidden discount, but investors must take an extraordinary price dispersion into account. Wheaton Precious Metals Corp. (WPM) carries the highest implied gold price at $4,395 an ounce, while Franco-Nevada Corp. (FNV) reflects a far more conservative $2,416.
So is this a buying opportunity or a value trap? The answer depends on whether you think the Fed will stop at one or two hikes—or go further. Either way, the miners are already pricing in a lot of pain.
