Gold (GC=F) prices extended declines on Wednesday following the worst intraday drop in more than 12 years, putting a pause on one of this year’s hottest rallies.
Futures for the yellow metal fell more than 1% to hover near $4,060 per troy ounce after dropping 5.5% in the prior session as investors locked in profits and the US dollar strengthened.
Prior to the sell-off, gold had climbed a whopping 65% year to date on strong global central bank demand and investor flight to the safe-haven asset as a hedge against the decline of fiat currencies in the so-called debasement trade. Wall Street strategists had warned of overbought conditions.
“We have highlighted the potential for volatility given the scale and speed of the rally, but we believe precious metals should remain supported by a combination of macroeconomic, fundamental, and momentum-driven factors,” Ulrike Hoffmann-Burchardi, chief investment officer for the Americas region at UBS, wrote on Wednesday.
Read more: Thinking of buying gold? Here’s what investors should watch for.
More expected rate cuts from the Federal Reserve this year, along with increasing demand for precious metals and ongoing political uncertainty, should remain a tailwind for the commodity going into the first quarter of 2026, the strategist said. She noted that real interest rates in the US could fall below zero, given sticky inflation, and that could make the US dollar less appealing to investors, thereby boosting flows into precious metals.
“We continue to view gold as an effective portfolio diversifier, with further gains toward our upside case of USD 4,700/oz still possible should adverse macro and political developments emerge,” Hoffmann-Burchardi wrote.
The decline in gold could signal rotational opportunities for bitcoin (BTC-USD), which has been trying to stabilize after a volatile two-week stretch, Fundstrat digital asset strategist Sean Farrell said Wednesday.
The world’s largest cryptocurrency declined more than 3% on Wednesday to hover near $108,000 per token, reversing a three-day recovery.
“I don’t think it’s a coincidence that the second we saw gold roll over, we saw bitcoin bounce pretty violently,” Farrell said on Tuesday evening.
Bitcoin rallied from around $107,000 last Friday to a session high of $113,000 on Tuesday, giving renewed optimism that the recent cryptocurrency rout may be in the rearview.
The strategist noted that over the past several years, both assets have had a lead-lag relationship.
“Gold generally leads, it peaks, rolls over, consolidates. Bitcoin follows,” Farrell said. “We’ll see if this is the early sign of a rotational trade. If this is not the start, I still think it’s going to happen at some point.”
