Can Gold Lose Its Shine?
Gold is glittering at all-time highs, recently touching around $3,700 per ounce, propelled by safe-haven demand, central bank buying, and expectations of U.S. Federal Reserve rate cuts. Analysts are racing to forecast $4,000, even $5,000 targets. But history reminds us that gold, while a long-term store of value, is far from immune to sharp crashes. Could today’s market be setting up for one? Separately, see: Warner Bros. Discovery Stock To $30?
When Gold Has Crashed Before
1980: The Blow-Off Top
In January 1980, gold hit $850/oz—an all-time record then—amid soaring inflation and geopolitical tension. But when the Fed under Paul Volcker raised interest rates above 15% to crush inflation, gold collapsed. By 1985, it was trading under $300/oz, a drop of nearly 65%. The full recovery back to prior highs took more than 25 years.
2011–2013: From Euphoria to Collapse
Gold reached nearly $1,920/oz in 2011 after years of Fed money-printing and fears of sovereign debt crises. But as U.S. growth stabilized and the Fed prepared to taper QE, the rally reversed. By late 2013, gold had fallen to ~$1,200/oz, a crash of over 35% in just two years.
2020–2021: Pandemic Spike and Fade
During the pandemic, gold surged to a then-record $2,070/oz in August 2020. But as vaccines rolled out, growth recovered, and bond yields rose, gold slipped back below $1,700/oz by early 2021—a decline of 18% in under 12 months.
These episodes show a common theme: gold tends to crash when the Fed or broader markets shift unexpectedly—either because inflation fears fade, interest rates rise, or speculative excess unwinds. Resilient demand is one of the factors we take into account in our High-Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception.
Why Today Could Be Risky
At nearly $3,700/oz, gold has priced in a perfect storm: imminent Fed cuts, weaker real yields, strong central bank buying, and ongoing geopolitical risks. But cracks are possible:
- Fed Surprise: If the Fed signals a “hawkish cut” (only one token cut, with inflation concerns still dominant), real yields could stay elevated—bad for gold.
- Dollar Rebound: A stronger dollar, perhaps from fiscal discipline or stronger growth, historically pressures gold lower.
- Speculative Overheating: Futures positioning shows hedge funds and institutions heavily long gold. Any reversal could spark forced selling.
- Central Bank Pause: If China or others slow purchases, a major demand pillar would wobble.
What a Crash Could Look Like
History suggests that after parabolic spikes, gold doesn’t just drift lower—it often plunges:
- A 20–25% correction would bring prices down to $2,800–$3,000/oz, unwinding speculative froth while still leaving gold in a long-term uptrend.
- A deeper 35–40% crash, akin to 2011–2013, could test $2,200–$2,400/oz, wiping out most of the pandemic-era and recent rally.
Bottom Line
Gold has earned its reputation as a safe haven, but safe doesn’t mean stable. The metal’s history is littered with sharp reversals after euphoric highs. With sentiment extremely bullish today, the question investors should ask is not just how high gold can go—but how hard it could fall if the Fed or the dollar deliver a surprise.
If you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
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