As gold approaches a bear market, the bottom-fishing army is here!

After the biggest drop in years, the gold market has started to attract bargain hunters, temporarily preserving the appearance of this three-year bull run.

This month, gold prices have fallen cumulatively by 15%. From the January closing peak, the drop at one point reached as high as 19%, nearing the 20% warning line that typically signals the start of a bear market. But on Friday, there was a turn for the better—investors stepped back in, and the gold price rebounded by about 3% that day, with market sentiment recovering somewhat.

Multiple market participants insist that the structural logic supporting gold has not changed. George Efstathopoulos, a fund manager at Fidelity International, said this pullback is a “buying opportunity,” and that “inflation risks, fiscal pressure, and concerns about bond credibility are still long-term structural tailwinds for gold.”

Max Layton, head of global commodities research at Citigroup, also said on a Bloomberg TV program that once speculative positions are liquidated, the firm will be “constructively bullish on gold,” and is “confident” that the gold price will be higher than current levels one year from now.

Reasons for the selloff: from stock-and-bond linkage to central bank trimming

The root of this round of gold price declines is the combined impact of multiple pressures.

The Iran war triggered broad selloffs across the stock, bond, and currency markets, forcing investors to sell gold to make up for losses in other assets.

Meanwhile, the conflict drove oil prices higher, lifting bond yields and reducing the appeal of this non-yielding asset; a sharp strengthening of the dollar has also put pressure on investors buying gold with non-dollar currencies.

There were also signs of loosening at the central bank level. Within two weeks after the outbreak of the Iran war, Turkey sold and swapped more than $8 billion worth of gold to protect the lira exchange rate. This move also harmed market sentiment, because throughout the entire bull market cycle, central banks have been the core buyers of gold.

Daniel Ghali, a commodities strategist at TD Securities, said that, as of now, the bigger trend is more likely that central banks will gradually slow their pace of accumulating gold, rather than fully switching to net selling.

ETF outflow nightmare: this month’s outflows could be the worst since 2022

In this selloff, gold ETFs have become the main outlet for selling pressure.

Gold ETFs are favored by both retail investors and institutional investors. Based on Bloomberg data calculations, in the past 14 months, gold ETFs saw net outflows in only one month, and the continued inflows into the metal provided key support for a 70% gain in gold over the same period.

However, this month ETF fund flows have turned sharply downward, with the potential to record the largest single-month net outflows since 2022, and to wipe out all inflows this year to date. ETF investors are especially sensitive to changes in interest rates, and the current high-rate environment is one of the main suppressing factors.

Last week, hedge funds also joined the camp of sellers, cutting their net long positions in gold to the lowest level since October last year. However, Robert Minter, director of ETF investment strategy at Aberdeen Investments, noted that stock market declines usually only trigger a small pullback in gold prices at first.

Is the logic of the bull market still there? The narrative is temporarily “put on the back burner”

This bull market began in early 2023, and gold has gained nearly 150% in total since then. At first, it was central banks in various countries accelerating gold purchases after Russia’s foreign exchange reserves were frozen; afterward, hedge funds followed, eventually forming a wave of retail demand.

The core narrative supporting gold’s rise in 2025 is the so-called “currency debasement trade”—that is, highly indebted countries such as Japan, France, and the United States, after the pandemic, lack the willingness to implement fiscal integration, so currency debasement and inflation will be the only way out, and precious metals are the most direct beneficiaries.

Robin Brooks, a former Brevan Howard and Goldman Sachs FX strategist and now a senior research fellow at the Brookings Institution, admitted that he has become a “believer” in this logic, using the historical correlation between gold and safe-haven currencies such as the Swiss franc as supporting evidence.

However, the outbreak of the Iran war has temporarily shifted market attention away from the issues of debt and fiscal deficits. John Reade, chief strategist at the World Gold Council, said:

“People are taking profits because the 2025 gold narrative has been temporarily put in a secondary position. But that doesn’t mean those long-term themes have disappeared; it’s just that they aren’t the most urgent matters right now.”