The gold market saw a sharp pullback on Monday, with prices slipping below US $4,000 per ounce as investors unwound some of the speculative positions that had fuelled the recent rally.

Spot gold dropped to around $3,980, retreating from the all-time high of $4,381 reached just a week earlier. The decline of more than 9 per cent in a single week has prompted industry figures to describe the move as a long-overdue correction rather than the start of a deeper slump.

From Rally to Reality

Gold had surged 27 per cent in seven weeks, breaking successive milestones at $3,000 and then $4,000 amid a mix of geopolitical tension, persistent government debt, and a weakening US dollar. But analysts now say the pace of gains had become “unsustainable,” with speculative buying pushing prices beyond fundamentals.

“Many in the sector see this as a necessary breather,” said John Reade, chief market strategist at the World Gold Council, during the London Bullion Market Association conference in Kyoto. “A pullback toward $3,700 wouldn’t surprise me — and it could set the stage for the next leg higher.”

Another senior trader at a major bullion bank described the earlier rally more bluntly: “Only the most optimistic thought gold would keep climbing at that speed.”

Cooling Speculation

Analysts note that while central banks have been key buyers over the past few years, their purchases have slowed recently, according to IMF data. Some smaller institutions are even trimming holdings to rebalance reserves as rising prices increase bullion’s share of total assets.

In retail markets, enthusiasm has remained high, with investors across Australia and Japan queuing for small gold bars and coins in recent weeks. Yet professionals question whether that momentum can last if prices continue to retreat.

Healthy Correction or Warning Sign?

Nicholas Frappell, head of institutional markets at ABC Refinery in Sydney, said the decline was a “healthy adjustment” after an overheated rally. “Corrections like this don’t finish overnight,” he said. “It may take time to find a new equilibrium.”

Similarly, Paul Fisher, outgoing chair of the LBMA, called the latest drop “a clearing out of market froth.” He believes that once speculative positions are flushed out, gold could stabilise and resume its longer-term upward path.

Long-Term Outlook Remains Bullish

Despite the recent weakness, most major banks — including HSBC, Bank of America, and Société Générale — maintain bullish long-term forecasts, with $5,000 per ounce targets for 2026.

Industry leaders argue that gold remains well supported by ongoing macro risks and diversification demand. As Ruth Crowell, CEO of the LBMA, put it, “Gold is no longer a niche asset. It’s becoming mainstream — part of every investor’s toolkit.”

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