Two-week plunge of $1,000, annual gains wiped out, has gold fallen to its bottom?

Why is the Fed’s QE signal considered a turning point for gold rebound?

Liquidity crunch and the complete failure of safe-haven logic are dragging gold into its worst plunge in forty years.

Since hitting a record high at the end of January, spot gold has been steadily declining, with nearly $1,000 wiped out over the past two weeks. Last week marked the most severe weekly drop since March 1983.

On March 23, spot gold completely collapsed, briefly breaking below $4,100, falling nearly 9% intraday, and setting the longest losing streak since October 2023.

Faced with an energy crisis triggered by Middle East conflicts and the freezing of Fed rate cut expectations, the former “safe haven” has become a “cash machine” for institutions to withdraw funds. Gold prices not only erased all gains for the year but also found support amid cross-asset sell-offs.

So, when will this downward sword hit bottom? The market is closely watching three major “slowdowns”: in the short term, the 200-day moving average at $4,080 is the last technical line of defense for bulls; if liquidity worsens further, gold could approach extreme levels around $3,900 or even $3,500. Amid rising fears of stagflation, technical support levels may only offer brief relief.

The true “bottom” of gold isn’t on the charts but in the signals of the Fed’s policy shift. Historical logic shows that during crises caused by credit contraction, the most liquid gold is often sold first. Only when global financial system stress reaches a critical point, forcing the Fed to restart quantitative easing (QE), will gold see a genuine reversal.

The worst weekly decline since 1983: Why safe-haven logic failed

Last week, international gold prices plummeted over 11%, the largest weekly drop since March 1983, falling rapidly from above $5,000 to around $4,500.

It further declined, briefly breaking below $4,100 on the 23rd.

Market analysts point out that deeper changes behind this crash involve three points, previously masked by market sentiment:

First, gold’s correlation with high-risk assets surged. The 30-day historical correlation between gold and high-beta momentum stocks hit 52%, a four-year high. This indicates gold has shifted from a traditional “safe haven” to a “high-risk momentum asset,” declining in tandem with US stocks rather than moving inversely.

Second, liquidity pressures triggered sell-offs. In a market environment of rising volatility, a strengthening dollar, and suppressed rate cut expectations, gold’s high liquidity makes it the first choice for institutions to rebalance, meet margin calls, or reduce Value at Risk (VaR) exposure. Coupled with accumulated profits over the past year, the “disposal effect” accelerated profit-taking.

Third, extremely crowded long positions caused a stampede. Between December last year and January this year, capital inflows into gold were equivalent to the total of the past 7-8 years, reaching a historic peak in position concentration. Although CTA funds’ holdings have decreased from 2.33% to 1.23% over the past month, the historic profit-taking still needs time to unwind.

If liquidity crunches triggered this crash, the sharp decline is also explained by the rapid reduction in central bank gold purchases. From 2022 to 2024, global central banks bought over 1,000 tons of gold for three consecutive years, a key structural support for the bull market. In 2025, this dropped to 863 tons, and by January 2026, monthly purchases fell to just 5 tons—over 90% below the average of about 70 tons per month.

Meanwhile, buyers are turning into sellers. Recently, Poland’s central bank announced plans to reduce holdings of gold reserves due to substantial profits, with proceeds used to increase defense spending. This signals a shift among central banks from “net buyers” to “profit takers.” Analysts warn that if this trend spreads, more countries may follow suit, further increasing gold supply pressure.

Key support levels to watch

Despite short-term pressure, major Wall Street institutions remain bullish on gold in the medium to long term. Bank of America maintains a 12-month target of $6,000, viewing the current decline as a short-term correction; UBS’s baseline target is $6,200, with an optimistic scenario of $7,200; Goldman Sachs sets a year-end target of $5,400.

On the technical side, CGS Group data shows implied volatility for gold has jumped to 43.3%, indicating that gold prices could fluctuate sharply between $4,216 and $4,766 in the near term.

Institutions are focusing on these three key support zones:

200-day moving average (~$4,080): The most immediate technical support and a critical trend line. Gold has broken below the $4,280–$4,320 support zone, making the $4,080 level the next important line of defense.

Around $3,900: Corresponds to the low point of the October 2022 correction and is a key Fibonacci retracement level (38.2%) of this year’s bull market correction, holding medium-term support significance.

$3,500–$3,600: If liquidity deteriorates more than expected, this zone, which was the upper boundary of weekly oscillations in mid-2022, could serve as an extreme bottom.

Ponmudi R (CEO of Enrich Money) states that if gold falls below the support zone of $4,250–$4,400, further downside to $3,800–$4,000 could open up; Jateen Trivedi (VP of commodities and currency research at LKP Securities) notes that under the dual pressures of high interest rates and geopolitical tensions, gold will likely remain volatile and weak in the short term.

Rebound doubts: Three major disruptions limit short-term recovery

Although downside is limited, China United Minsheng Securities remains cautious about a short-term rebound, citing three key reasons.

First, attacks on energy facilities are the biggest “gray rhino.” After Israel’s strikes on Iranian gas facilities from March 16–20, Iran retaliated by targeting oil and gas infrastructure in Saudi Arabia, Qatar, and the UAE, pushing Brent crude near $120 per barrel. The report warns that the destabilizing “see-saw” effect could be unleashed again at any time.

Second, “supply stabilization” measures are insufficient. On March 19, US Treasury Secretary Yellen announced plans to ease some Iran sanctions to stabilize oil prices. About 140 million barrels of Iranian sanctioned oil are available for release in the Persian Gulf. The report states that this amount is only enough to cover 1–2 days of global consumption, making it more about “expectation management” and “emotional reassurance” than actual supply relief.

Third, the Strait of Hormuz is unlikely to reopen quickly. Iran can use drones, mines, and other low-cost means to continue blocking the strait, with costs far lower than clearing it. According to Polymarket data, the probability of the strait returning to pre-conflict levels before the end of April has been declining since March 10, now below 30%. Persistent disruptions could keep inflationary pressures high, suppress rate cut expectations, and limit the sustainability of precious metal rebounds.

Waiting for the Fed’s QE signal

Earlier reports from Wall Street Insights mention Jeff Currie, Chief Strategist at Carlyle Energy Path and non-executive director at Energy Aspects, who offers a different analysis framework from traditional safe-haven logic. He believes that before the Fed actually initiates QE, gold faces selling pressure rather than buying opportunities.

His core logic: When supply shocks cause credit contraction, the primary concern for governments and institutions is financing, not hedging. Gold, being the most liquid asset, is often sold first. Poland’s recent announcement to sell part of its gold reserves to fund expenditures exemplifies this logic. He also notes that since July 2022, the trend of oil-producing countries shifting from dollar-based oil sales to gold purchases has been a major driver behind the approximately 112% increase in gold prices since mid-2024—the current levels have largely priced in geopolitical premiums and de-dollarization expectations.

Currie references March 2020: During the liquidity crisis, gold was also sold off until the Fed announced unlimited QE on March 23, 2020, after which gold stopped falling and began a strong rally. He states, “The real logic is: short gold before QE, then go long once QE starts.”

(Jeff Currie, Chief Strategist at Carlyle Energy Path and non-executive director at Energy Aspects)

The conditions for triggering QE are accumulating: German bond auctions are failing, the US mortgage market is under pressure, and signals of shrinking global credit pools are increasing. Currie believes that facing ongoing supply shocks from the Strait of Hormuz blockade, central banks will almost inevitably turn to QE, at which point gold could enter a true bull phase.