Gold prices experience their sharpest quarterly decline since 2013.
Gold prices have just experienced the strongest correction phase in more than a decade, but according to a new report by Sprott Inc., this decrease mainly reflects short-term factors such as the strengthening USD, expectations of interest rate hikes and sell-offs by investment funds, while long-term support for the gold market has not changed.
According to a report by Mr. Paul Wong - Managing Partner and market strategist at Sprott, a company investing in precious metals and critical materials, spot gold prices fell 532.24 USD/ounce, or 11.72%, in June, to 4,008.02 USD/ounce. This is the fourth consecutive month of decline and also a sharp decrease.
In the second quarter of 2026, gold prices lost 660.04 USD/ounce, equivalent to 14.14%, recording the sharpest quarterly decline since the second quarter of 2013 - when the US Federal Reserve (Fed) began its interest rate hike cycle after the 2008 global financial crisis.
According to Sprott, the deep correction has pushed investor sentiment down to the most pessimistic level in many years.
Sales activity increases
The first wave of sell-offs appeared after the US and Iran signed the Memorandum of Understanding on Islamabad, causing oil prices to fall sharply while the USD appreciated. After that, the market continued to face pressure as investors interpreted Fed Chairman Kevin Warsh's first statements after the June meeting in a tougher direction towards monetary policy.
Expectations that the Fed may continue to raise interest rates have pushed short-term Treasury bond yields up, thereby continuing to support the USD. In that context, many quantitative trading funds and algorithmic trading systems simultaneously sold gold as the USD broke through along with the short-term interest rate increase.
The report also said that investment funds continuously cut gold positions from March to May to narrow investments using high leverage. In June, selling activity continued to increase as macroeconomic indicators weakened, while gold buying demand from some organizations related to the public sector decreased.
Notably, Sprott believes that the decrease in gold prices is much greater than the actual increase in the USD and operating interest rates. This shows that most of the negative impact from the high interest rate environment and the strong USD has been reflected in gold prices.
After the sell-off, gold fell below the 200-day moving average for the first time since October 2023 and entered the oversold zone. In the past 10 years, whenever gold prices fell by about 90% compared to the 200-day moving average, the market often formed an important support zone.
Since the peak set at the beginning of the year, gold prices have decreased by about 26%, marking the deepest correction since 2016.
Meanwhile, the Dollar Index (DXY) has increased by 2.91% since the beginning of the year, while the yield on two-year US Treasury bonds has increased by about 70 basis points.
The above developments also led to a significant change in monetary policy expectations. If at the beginning of the year the market still predicted that the Fed would cut interest rates about 2.3 times in the remainder of 2026, now expectations have shifted to about 1.5 times higher interest rates due to high inflationary pressure.
According to Sprott, one of the biggest issues currently is that the market has not yet clearly defined whether Fed Chairman Kevin Warsh will pursue a tough or flexible monetary policy.
Mr. Warsh took over the Fed in the context that the US economy still maintains good resilience with a stable labor market, positive growth, high asset prices and inflation still significantly higher than the Fed's target of 2%. Meanwhile, President Donald Trump has repeatedly expressed his desire for interest rates to be lowered to support growth.
Sprott said that the debate in the market is shifting from the question "when will the Fed cut interest rates" to "whether the Fed needs to continue raising interest rates to control inflation or not".
There are still many positive views on gold
However, many investors still believe that the Fed will have to ease policy if the financial market weakens strongly. This view makes the market not really believe in a prolonged interest rate hike cycle.
Despite short-term pressure, Sprott continues to maintain a positive outlook on gold in the long term.
According to this organization, the USD can still maintain strong upward cycles even though the long-term trend of dominating role in the global monetary system is gradually decreasing. Large budget deficits, increasing public debt, expanding monetary policy, central bank gold buying activities and geopolitical fragmentation trends are all promoting the process of diversifying global reserves.
Every time the USD increases sharply, the cost of borrowing in USD in the world increases, causing many countries to have the motivation to seek alternative reserve assets. According to Sprott, this does not mean that the USD will lose its position, but the world is likely to move to a more multipolar monetary system, in which the USD still plays an important role but gold is increasingly becoming a neutral reserve asset between economic blocs.
The report cites data from the International Monetary Fund (IMF) showing that before the Russia-Ukraine conflict, gold accounted for an average of only about 12% of total global reserves. After Russia's foreign exchange reserves were frozen and many countries increased concerns about geopolitical risks, the proportion of gold in total reserves once increased to about 34% before ending the second quarter at 27%.
According to Sprott, the trend of central banks increasing gold holdings is still being maintained and reflects the increasing role of precious metals as a strategic reserve asset.
