Market Report

No. 32 | 31^st  August 2026: Gold breaks out, but has the rally resumed?

The gold price has been in its largest and longest price correction since 2022, following its rally to a record $5,595/oz in January. The price has broken through a downtrend line so the question is whether that correction is over or has further to go. After such a large price hike, 246% in 3.5 years, a period of consolidation is no great surprise. Six months is a similar length to the larger corrections since 2016 and a 29% price decline is larger, but those previous, shallower corrections followed much smaller price gains. However, the recent price rise has also taken it above its 200-day moving average that itself is still rising, which is a sign of an uptrend. 

Investor sentiment has cooled but it is unclear whether it has receded sufficiently to set the stage for further sustainable gains. The rally tends to resume once traders and investors are uninterested if not outright bearish. In January, sentiment was extremely positive with retail traders rushing to buy in many countries, causing local shortages of gold bars. Demand has certainly eased since then. Bar and coin sales were down 36% in Q2’26 from Q1’26, at a still decent 307 tonnes (source: World Gold Council), and ETF holdings fell by 45 tonnes. The non-commercial traders’ net long position in gold futures had declined to 15 moz at its recent low point, down from 25 moz in January. However, that is still noticeably higher than in 2018 and 2022 at the end of two prior lengthy corrections in the gold price. 

Central banks continue to buy gold. The Word Gold Council’s Central Bank Gold Survey noted that reasons to hold gold included gold’s performance during times of crisis, portfolio diversification, inflation hedging and as a geopolitical risk hedge. Central banks’ gold purchases have slowed to 345 tonnes in the first half of 2026 but still look likely to come in higher than the average over the last 15 years. 

Investors may well return to gold, for similar reasons to those of central banks. The US continues to run large budget deficits and government debt has passed $40 trn, which is substantially larger than the size of the economy. The US is far from alone in having debt above 100% of GDP and governments are not making a concerted effort to rein in their spending and reduce their deficits. That means that debts will continue to climb, leading to ongoing concerns about debt sustainability, inflation and currency depreciation. In that environment, it seems likely that investors will continue to buy gold, suggesting that the longer-term path for gold is higher, even if in the shorter term the price is volatile.

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