Following a strong run in 2025 and early 2026, the gold price has fallen by around 25% since record highs in January, despite traditionally being known as a safe haven asset. With geopolitical risks still heightened, Ian Aylward, head of investment partnerships at AJ Bell, asks why the price of gold has dropped.
We entered this year with gold tipped by many commentators to be a strongly performing asset. This was prompted by its perception as a ‘safe haven’ asset given the geopolitical risks globally. And yet, despite reaching the heady heights of over $5,400 per ounce in the first quarter of 2026, its price is below where it was at the beginning of the year at around $4,100 per ounce. So why might this drop of around 25% be? It’s certainly not the case that geopolitical risks have lessened; quite the opposite.
There are several probable reasons for the price correction. Bear in mind that, unlike so many other assets, gold is fundamentally difficult to value because it produces no income in the form of dividends or other cash flows.
That said, there are metrics we can consider and the first of these is the level of bond yields and especially real bond yields. These have both risen strongly this year given the increasing view that inflation will remain higher for longer. The return on bonds is often cited as the opportunity cost of holding gold, given that the latter has no yield, and so this headwind has certainly increased as the year has progressed.
The second consideration is flows. Whilst there are several main sources of demand, an important one is that from investors. Another is from central banks. They tend to buy for long-term strategic reserve reasons and this demand has essentially remained stable. However, the source of demand from investors, as manifested by flows into ETFs, has waned over the course of this year, in sharp contrast to that for technology.
On AJ Bell’s D2C platform, net flows into gold ETFs were down almost two-thirds (64%) between January and October 2026, compared with the same period last year.
The final likely reason for the price correction is the strength of the US dollar. The strong dollar, supported by rising bond yields, means it’s more expensive for international buyers.
Despite its drawbacks, there are some potential benefits of investing in gold. For example, it is highly liquid and investors often sell assets that have performed well to realise gains, regardless of the original investment thesis.
Another benefit is that of diversification over the long term. Whilst the near-term direction of gold is notoriously difficult to predict, its role within a diversified portfolio may be as important as standalone return potential, particularly given its tendency to behave differently from equities and bonds over time.
What next for gold?
What happens to the price next may depend less on geopolitics than many investors assume. If real yields remain elevated and the dollar stays strong, the opportunity cost of owning gold is likely to remain significant. Conversely, falling real yields, a weaker dollar or a revival in investor demand could provide renewed support. Trying to predict which of those forces will dominate is difficult, particularly for an asset with no conventional valuation anchor.
Gold is inherently volatile, with risk characteristics closer to equities than to defensive assets. Its annualised volatility (around 17%) is significantly higher than US Treasuries (around 8%) and broadly comparable to equity indices. Furthermore, gold has gone through long periods (such as from the 1980s to the early 2000s) where its price moved sideways despite high volatility, offering little guidance on future returns or potential price breakouts.
That is perhaps the most important lesson from the gold price journey this year: its diversification benefits may be valuable, but its path remains inherently difficult to predict.
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