Gold price falls: 21% below its record, what Wall Street is thinking

Seven months ago, gold was worth $5,589.38 an ounce. On January 28, 2026, during trading, the metal reached its all-time high, driven by a projected 2025 increase of over 60%, unprecedented central bank purchases, and a record geopolitical risk premium. On September 1, the same ounce was trading at $4,325. In between, there was a 28% correction to the July low of around $4,050, a summer rebound of about 10%, followed by a sharp drop of over 3,5% in two sessions at the turn of August and September. For an asset considered a "safe haven," this sequence is certainly perplexing. Yet, it can be understood, provided one looks in the right place: not in the Middle East, but in Washington.

The facts: from the January record to the low point of September 1st

Let's review the timeline. After the January peak, gold experienced its sharpest quarterly correction since 2013. Three identifiable forces were at play: the Federal Reserve's restrictive policy shift under Chairman Kevin Warsh, massive profit-taking following the 2025 rally, and the paradoxical effect of the Iran-US conflict, which we will discuss later. The July low, around $4,046, then gave way to a strong rebound: a gain of nearly 10% in August, reaching a three-month high in the last week of the month, between $4,450 and $4,500.

The reversal was timed. On August 30, US forces struck Iranian rocket launchers on Larak Island; Tehran retaliated with ballistic missile strikes on two US bases in Jordan. On Monday, August 31, gold fell. On Tuesday, September 1, it fell again: $4,374 spot during the session, down $71, and $4,325 at the close for the benchmark contract, down 2,86%. On September 2, the market opened at its lowest level in two weeks. At that point, the price per ounce was 21,8% below its record high.

The Iranian paradox: why war is causing gold to fall

The investor's reflex is well-known: when the guns roar, gold rises. This reflex worked in 2024 and 2025. It no longer works, and the reason lies in a chain of causality that trading floors grasped before the general public. Every escalation in the Strait of Hormuz drives up oil prices. Higher oil prices raise inflation expectations. Inflation that doesn't come down forces the Federal Reserve to toughen its stance, thus considering raising interest rates. And higher rates are, by definition, the enemy of an asset that pays neither coupons nor dividends.

In other words, the market no longer sees Iran as a risk to hedge with gold, but as an inflationary factor that brings a rate hike closer. This is what Bloomberg summarized on August 31: gold stabilized after two days of decline "as the escalation in the Middle East strengthens bets on a Fed rate hike." The geopolitical premium still exists; it is simply overshadowed by the interest rate premium.

Warsh's Fed and the Wall of Yields

The figures are unambiguous. According to the CME's FedWatch tool, the probability of a 25-basis-point hike at the September 15-16 meeting jumped from 39,6% to 66,4% in a week, with some readings putting it at 70% on September 1. The trigger: comments from Kevin Warsh indicating that the Fed still had "work to do" on prices, and inflation fueled by energy costs.

The bond market followed suit. The yield on the 10-year US Treasury note fell back to around 4,7%, after reaching 4,696% in August; the 2-year settled above 4,17% and the 30-year surpassed 5,26%. The dollar strengthened in the same movement. For a New York fund manager, the arbitrage opportunity is stark: a 10-year Treasury note pays nearly 4,7% with no price risk, while gold yields nothing and has just lost a fifth of its value. The opportunity cost of holding the metal has not been this high since the beginning of the bull market.

The opportunity cost of holding metal has not been this high since the start of the bull cycle.

Emmanuel Legendre

Two gold markets: ETFs sell, central banks buy

This is the point that daily commentary overlooks, yet it's the one that matters for what follows. The same metal, at the same price, is the subject of massive sales on one side and record purchases on the other.

On the sellers' side, index funds backed by physical gold saw net outflows of 45 tonnes in the second quarter of 2026, concentrated in North America, following already significant redemptions in March. These are tactical investments, sensitive to real yield and the dollar: they sell when rates rise and will return when they fall.

On the buyers' side, central banks acquired a net 289 tons in the second quarter, a 62% year-on-year increase, following 244 tons in the first quarter: more than 530 tons for the first half of the year, an unprecedented pace. The National Bank of Poland bought 51 tons in the second quarter alone, and 82 tons since January; the People's Bank of China added 33 tons, its largest quarterly increase since the end of 2023. These institutions are not hedging against the 10-year US Treasury bond. They are diversifying their non-dollar reserves, with a ten- or twenty-year horizon, and the price decline is not driving them away: it is encouraging them to buy.

This divergence marks the floor. As long as official demand absorbs what ETFs return to the market, the correction remains a correction, not a cyclical reversal.

What this changes in euros

For a French investor, the price is measured in grams and euros, and the euro has acted as a buffer. Based on the reference prices recorded daily by GOLDMARKET, the price of a gram of fine gold peaked at €128,40 on August 25 before falling back to €120,06 on September 1: a 6,5% decline in five trading sessions, less pronounced than in dollars, as the euro weakened slightly against the greenback to around 1,158. On September 3 at 17 p.m., the price of a gram rose to €124,61, up 2,35% for the day.

Today's rebound is consistent with the mechanism described above: as soon as expectations of rising interest rates recede, gold recovers. It also illustrates the new volatility of a market which, at these price levels, is fluctuating by 3 to 4 euros per gram in a single session. See the gold price of the day before any decision is made.

The two scenarios of September

Restrictive scenario. The Fed raised rates on September 15th and 16th, hinting that it wasn't finished. The 10-year Treasury yield settled above 4,7%, and the dollar continued its rebound. Gold retested the $4,300 mark, then the July low around $4,050, or approximately €112 to €118 per gram depending on the exchange rate. ETFs continued to sell, central banks continued to buy, and the market searched for a lower equilibrium point.

Pause scenario. Inflation and employment data released before the meeting disappoint the hawks, the Fed is stalling, and yields are falling. Gold is heading back towards its August high, between $4,450 and $4,500, with the $4,900 to $5,000 range in its sights for the end of the year, a level that several major investment banks included in their spring forecasts.

What we are monitoring, in order: the Fed's communication and the PCE price index before September 15, the yield on the US 10-year bond, the dollar index, the monthly ETF flow statistics, and of course the Strait of Hormuz, not for the fear it inspires, but for the price of oil it increases.

The key takeaways, depending on whether you are buying or selling

The gold market is experiencing a classic end-of-cycle moment of monetary tightening: quick capital is leaving, patient capital is entering. The history of the last twenty years has consistently proven the latter right. It doesn't specify when.