From FOMO to fear of margin calls: gold’s wild ride enters new stage

LONDON – Gold’s remarkable rise has moved into a new phase with the swelling influence of speculators bringing greater volatility yet market players are sticking with forecasts for higher prices in 2026 even if central bank demand eases.

On track for its biggest yearly rise since 1979, gold’s 54% rise year to date has seen it break through key psychological resistance levels at USD 3,000 per troy ounce in March and USD 4,000 in October.

Powering the run have been political tensions and US tariff uncertainty, and more recently, a wave of fear-of-missing-out (FOMO) buying.

“The nature of the rally has changed, driven now by Western investors rather than the stickier emerging market buyers of most of the last two years,” said John Reade, senior market strategist at the World Gold Council.

“This means more uncertainty and volatility even if the factors driving gold look set to continue,” he added.

On Monday, gold hit a record USD 4,381 an ounce, a level few had predicted a year ago or expected to see any time in their lifetimes.

Delegates heading to the London Bullion Market Association (LBMA) conference in Japan next week had forecast a year ago a price of USD 2,941 by this point.

Having achieved so many major milestones, bullion saw a 5% sell-off on Tuesday in the steepest daily fall for five years, driving the market’s relative strength index, which measures the magnitude of price changes, to “normal” from “overbought” for the first time in seven weeks.

“A consolidation would in fact not be unusual after such a sharp and steep rally and should be considered healthy,” said Julius Baer analyst Carsten Menke. “The fundamental backdrop for gold remains favourable.”

US RATE CUTS AND STOCKS

Gold’s record high on Monday took it up 20% since rate cuts by the US Federal Reserve in September.

That outpaced bullion’s performance versus most recent Fed easing cycles, according to analysts at Oxford Economics.

“In previous cycles the Fed was not cutting interest rates at all-time highs in US stocks, with bubble talk in markets and inflation still convincingly above their target,” said Nicky Shiels, head of metals strategy at MKS PAMP.

“Seems like this ‘everything bubble’ has room to run, and gold prices through USD 4,500 will only sustain the FOMO buying in retail.”

Gold prices have increased twofold in the past two years, having surpassed the 1980 inflation-adjusted high calculated by MKS PAMP at USD 3,590 (nominal high of USD 850 then).

A WARY EYE ON RISING S&P 500

Market specialists are keeping a wary eye on a rising S&P 500 stock index and a simultaneous inflow of investor cash into bullion, mindful of historical cases when sharp corrections in equity markets forced the sale of safe haven assets, including gold.

“A portion of gold purchases have been made as a hedge against equity market declines,” HSBC analyst James Steel said in a recent note.

“A correction in equities could, as they have in the past, trigger long liquidation as investors seek to raise cash or meet margin calls.”

CENTRAL BANKS, INSTITUTIONAL INVESTORS

With exponential gains over the past month, emerging market central banks don’t have to do much to keep progressing their common aim – increasing the share of gold in their foreign currency reserves for diversification.

Although central bank buying is widely expected to remain elevated for years, having supported demand for bullion since late 2022, the price rally automatically increases the value of their holdings.

“That thinking also applies to long-term institutional investors who are perhaps hitting portfolio thresholds and need to de-risk and reduce their gold holdings,” Shiels said.

Analysts also caution that if investor momentum slows in 2026, excess physical supply could begin to weigh on prices as demand from the jewellery sector in the key consuming regions is falling.

China’s January-September gold imports fell 26% in tonnage terms, according to the Trade Data Monitor. India’s January-July imports fell 25%.

(Reporting by Polina Devitt; Editing by Veronica Brown and Jason Neely)