Gold price down over 30% from record high. Is this correction the start of a bear market?

Gold price outlook: Gold's slide from its record high of nearly $5,600 has now extended beyond 30%, with prices hovering around the $4,000 mark. The sharp correction has pushed the precious metal into negative territory for the year, prompting investors to reassess the factors that had fuelled its historic rally. The decline has come despite continued geopolitical uncertainty and sustained central bank buying, suggesting that markets have shifted their focus from safe-haven demand to interest rates, bond yields and broader financial conditions.

The weakness persisted on Tuesday, with gold falling for a second straight session as a stronger US dollar weighed on prices while investors awaited the release of the Federal Reserve's meeting minutes and continued to monitor tensions in the Gulf.

Spot gold declined 0.8% to $4,129.36 per ounce at 0918 GMT, while US gold futures for August delivery eased 0.6% to $4,140.90. The decline comes after gold had rallied more than 2% last week, snapping a four-week losing streak following a weaker-than-expected US jobs report.

What's behind the drop?

According to Renisha Chainani, Head of Research at Augmont, safe-haven demand has not been sufficient to keep gold prices elevated. While geopolitical tensions typically boost demand for bullion, investors have instead focused on what those tensions could mean for inflation and future interest rate decisions rather than on the geopolitical risks themselves.

She said hopes for interest rate cuts this year gave way to expectations of a tighter monetary policy after the war in Iran triggered an energy shock and pushed inflation higher. At the same time, a broader liquidity sell-off added to the pressure. When technology and artificial intelligence stocks witnessed a sharp correction at the end of June, investors also sold gold and silver to raise cash and reduce leverage for margin calls.

Chainani believes the current weakness is cyclical rather than structural. "The pressure looks cyclical, tied to the macro backdrop, rather than a sign that gold's long-term case has weakened. The structural support is still there, though gains from here may come slower and with more swings," she said.

She added that gold typically strengthens ahead of major risk events because it acts as a liquid asset that can easily be sold when prices are high. During the US-Iran conflict, however, oil absorbed most of the geopolitical premium, while gold became an asset that investors and central banks chose to monetise instead.

Gold outlook: Is this the start of a bear market?

Despite the recent correction, Chainani said the long-term investment case for gold remains intact as it continues to provide diversification during periods of equity market stress, inflation surprises and declining confidence in fiat currencies. Continued central bank buying, persistent geopolitical risks, rising public debt and concerns about the Federal Reserve's independence should continue to support gold as an inflation hedge.

"Putting the pieces together, gold could climb back toward $4,400 in the next few weeks, with a clear catalyst needed to push it toward $4,900-$5,000 by the end of 2026, and a fresh high possible in 2027 if conditions stay favourable. Technically, $3,950-$4,000 has been a strong support zone where prices have bounced before, and it should hold again," Chainani said.

Chainani believes the current decline represents a pause rather than the beginning of a prolonged bear market, as the key fundamentals supporting gold remain in place. She expects the Federal Reserve to keep interest rates unchanged for the remainder of the year. While markets are closely watching the core PCE inflation index for clues on future policy, she believes trimmed-mean and market-based inflation measures, which Federal Reserve Chair Kevin Warsh favours, should remain closer to the Fed's target.

She also expects inflationary pressures to ease as crude oil prices have fallen 40% over the last quarter and the impact of tariffs has diminished. According to her, the Fed's next policy move is more likely to be a rate cut in 2027, and gold should receive support once markets stop pricing in additional rate hikes. Slower economic growth and reduced fiscal support next year are also expected to benefit bullion.

Chainani noted that although ETF and central bank selling during the first half of 2026 has not matched the pace of buying seen in 2025, central banks continue to accumulate gold and remain an important source of demand. Many are also accelerating de-dollarisation by increasing gold holdings while reducing exposure to the US dollar.

She pointed to a World Gold Council survey showing that 84% of central banks expect gold to account for a larger share of reserves over the next five years, while nearly 90% plan to increase their holdings within the next year. She also noted that although the US dollar may remain firm in the near term, long-dollar positioning appears stretched, while structural concerns such as large fiscal and external deficits could weigh on the currency over time. Historically, a weaker dollar has been supportive of gold prices.

According to Chainani, speculative positioning in precious metals has remained relatively stable despite a difficult quarter, indicating that hedge funds are not aggressively betting on further downside. Gold and gold-linked investments also account for just 5.5% of combined equity and bond markets, leaving significant room for portfolio allocations to increase once interest rate expectations stabilise.

Chainani said the Federal Reserve will remain the biggest driver of sentiment for the US dollar and gold prices. Physical demand will also be closely watched, particularly outside China, where buying has remained subdued. Investors will monitor whether retail buyers in the Middle East, India and the rest of Asia return to the market and at what price levels.

Markets currently expect at least one more interest rate hike this year, although the Federal Reserve's own projections remain divided. While the latest dot plot has a slightly hawkish bias, half of the policymakers—excluding Chair Kevin Warsh—still expect interest rates to remain at or below current levels in 2026.

The closely contested US midterm elections in November 2026 are another event likely to influence markets, with Democrats expected to regain control of the House while Republicans may retain the Senate.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.