Gold Selloff - Why Gold Is Pulling Back After a Parabolic MoveIn my view, the sharp selloff in gold is neither an accident nor a market anomaly, but a natural reaction after parabolic moves driven almost entirely by momentum. This had become a crowded trade, with increasing amounts of capital rotating in from other asset classes not because of strong fundamental conviction, but out of fear of missing the trend. In such environments, even a minor shift in news flow or perception is enough to trigger a violent correction.
The catalyst, in my opinion, was a shift in monetary-policy expectations: the appointment of a Fed chair perceived as responsible and independent reduced fears that the dollar would be deliberately debased through artificially lower interest rates. The immediate strength in the dollar confirms this change in sentiment, while gold is highly sensitive to such expectations — reacted in the opposite direction through rapid capital outflows.
What we are seeing now looks more like a forced pause in the trend rather than a complete invalidation of the medium-term thesis. That said, the structure of the move is consistent with potential blow-off tops: excessive acceleration followed by an abrupt correction. Whether this proves to be a major top or not will only be clear in hindsight, but it would not surprise me if gold remain under pressure for some time as speculative positions continue to unwind.
Over the longer term, I still believe gold has a legitimate role in a portfolio as a counter-cyclical asset and a hedge.
The gold selloff may continue in the short term, as speculative positions are still being liquidated and the market digests the shift in monetary policy expectations. The correction does not automatically invalidate the long-term thesis, but it suggests that gold needs time—and probably lower prices—before it can build a base for a potential resumption of the trend.
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