Gold has dropped from big highs (Image: Olga Kostrova via Getty Images)
Gold prices have pulled back sharply in recent weeks, falling from around $5,400 at the start of March to closer to $4,400 today – but why is this and what should you do? The significant drop in the price of gold has prompted fresh questions over whether the precious metal’s remarkable run is finally losing momentum.
After months of near relentless gains, the drop has caught some investors off guard, particularly those who had expected geopolitical tensions to continue driving prices higher. However, experts say the recent decline needs to be viewed in context. Despite the pullback, gold remains historically elevated – it was, after all, around $3,000 a year ago.
Jim Tannahill, managing director of London pawnbroker Suttons and Robertsons, said: “It’s important to take a step back here. Yes, prices have come down from recent highs, but gold is still very high compared to where it was even two years ago.
“It’s still almost 40% up on a year ago and around 115% higher than this time in 2023. So while the recent drop might feel significant in the short term, the longer-term picture is still very strong.”
The recent volatility highlights a shift in what is driving gold prices. While geopolitical risks, including ongoing global tensions, continue to provide underlying support, they are no longer the sole force pushing prices upwards.
Jim explained: “Geopolitical risks are still providing support for gold, but recent price action suggests they aren’t enough on their own to fuel a lasting rally. What we’re seeing now is that broader macro-economic factors are having a bigger influence. The strength of the US dollar and expectations around interest rates are continuing to cap further gains.”
A stronger dollar typically makes gold more expensive for international buyers, while higher interest rate expectations increase the value of the US dollar, which can have a knock-on impact on the gold price.
Jim Tannahill (Image: Sutton and Robertsons)
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Together, these factors have helped cool the recent rally. Even so, Jim believes the outlook for gold remains positive.
Jim said: “We anticipate prices will remain elevated and there is still the potential for gold to hit further all-time highs in the medium term. The underlying drivers haven’t disappeared, they’ve just become a bit more balanced.”
For individuals, the question of whether to buy, sell or hold gold has become more nuanced in light of recent movements.
Jim added: “Whether people choose to buy or sell at times like these really comes down to their own personal circumstances and objectives. There’s no one-size-fits-all answer.”
One trend Jim expects to see is an increase in people using gold as a source of collateral for short-term loans rather than selling outright.
He continued: “We anticipate we’ll see an uplift in people borrowing against their gold rather than selling it. That allows them to access funds while still retaining ownership of the asset so that they can benefit from any uptick in the price.”
At the same time, the recent dip could present an opportunity for those who felt they had missed out during gold’s rapid rise.
Jim said: “Clearly the recent pullback gives people who felt they missed the boat a window to buy into precious metals at a price that just wasn’t possible earlier this year. With that in mind, every cloud does have a silver – or rather golden – lining. But as with any investment, people should take professional advice before making any significant decisions.”
While gold may no longer be surging at the pace seen earlier this year, it remains firmly in focus for investors navigating an uncertain global landscape.