Gold Slides Over 7% to $4,500

By Praisebell Rosemond Larbi

Gold prices suffered a sharp reversal, falling more than 7 per cent toward $4,500 an ounce on Monday, as investors reassessed the outlook for U.S. monetary policy following reports of a potential hawkish shift at the Federal Reserve. The decline extended losses from the previous session and marked gold’s steepest one-day drop in more than a decade, abruptly ending a historic rally.

The initial selloff was triggered on Friday after reports emerged that U.S. President Donald Trump plans to nominate Kevin Warsh to lead the Federal Reserve. Warsh, a former Fed governor, is widely viewed by markets as more hawkish than current policymakers, particularly on inflation and interest rates. The prospect of tighter monetary policy and higher-for-longer rates weighed heavily on gold, which typically struggles in environments where yields rise and the U.S. dollar strengthens.

The reports prompted investors to rapidly reprice expectations around future rate cuts, undermining one of gold’s key supports. Higher interest rates increase the opportunity cost of holding non-yielding assets such as gold, making the metal less attractive relative to interest-bearing securities.

The downturn was further intensified by widespread profit-taking, following an extended rally that had pushed gold to record highs. In recent months, gold prices had surged on the back of robust central bank purchases, particularly from emerging markets seeking to diversify away from the U.S. dollar, and the so-called “debasement trade”, where investors flock to hard assets amid concerns over rising government debt and fiscal sustainability.

Gold’s rally had also been fueled by heightened geopolitical tensions and global economic uncertainty, which reinforced its appeal as a safe-haven asset. Persistent worries about the independence of the U.S. Federal Reserve and the credibility of long-term monetary policy had further boosted investor demand, helping drive prices to unprecedented levels.

However, analysts noted that momentum and speculative buying played an outsized role in amplifying the rally. Strong inflows from Chinese retail and speculative investors, in particular, added significant froth to prices. As sentiment shifted, those same speculative positions likely accelerated the downturn, with investors rushing to lock in gains amid rising volatility.

“The scale of the decline reflects how crowded the trade had become,” analysts said, noting that once the policy narrative shifted, selling pressure intensified rapidly across futures and physical markets.

Despite the sharp correction, market watchers cautioned that the longer-term outlook for gold remains closely tied to inflation trends, central bank demand, and geopolitical developments. While expectations of tighter U.S. monetary policy have weakened near-term sentiment, ongoing global uncertainties and fiscal risks could continue to underpin demand over the medium term.

For now, the abrupt selloff serves as a reminder of gold’s vulnerability to sudden shifts in interest-rate expectations, especially after periods of speculative excess. Investors are expected to closely monitor developments around the Fed leadership nomination, U.S. policy signals, and global risk sentiment as they assess whether gold’s pullback represents a deeper correction or a pause within a broader long-term trend.