How is it possible that gold, the safe-haven asset par excellence, is going through one of its most pronounced stretches of weakness in years at the very moment US inflation has reached 4.2% on an annual basis, a level that historically should have turned it into one of the most sought-after assets on the market?

What has been happening to XAUUSD (the spot price of gold against the US dollar) in recent months has every appearance of a paradox, but looked at closely it seems to reveal a fairly precise internal logic. From the intraday high of $5,586 an ounce reached on January 29, 2026, the precious metal has shed more than 20% of its value. That would be the deepest correction recorded by gold since November 2022, and for the first time in more than 600 consecutive sessions the price closed below its 200-day moving average, the technical dividing line that many institutional traders use to separate a structurally bullish trend from a phase of prolonged deterioration.

What makes all of this harder to interpret is the macroeconomic context in which the correction is unfolding. US inflation, as measured by the consumer price index, reportedly reached 4.2% year over year in May 2026, the highest level in three years. US fiscal deficits remain historically wide, with little political appetite in Washington to reverse course on public spending. Geopolitical tensions in the Middle East continue to weigh on expectations around global energy supply, even as talk of «peace» begins to surface. And according to World Gold Council data, central banks around the world reportedly resumed buying gold on a net basis in April after a stretch of selling. On paper, the combination of these factors should have pushed prices higher.

The hidden mechanisms behind the downward pressure

To understand why it did not, you have to consider two mechanisms that operate in the short term largely independently of the metal’s structural fundamentals. The first concerns the inverse relationship between real interest rates and gold. When investors expect the Federal Reserve to keep rates elevated for longer than anticipated, the yields on US Treasuries become more competitive against an asset that generates no income stream. In a rising-rate environment, the opportunity cost of holding gold increases sharply, a dynamic that today appears amplified by speculation that Kevin Warsh, a figure associated with a more restrictive monetary line, could take the helm of the Fed, cementing expectations of hawkish policy over the medium term.

The second mechanism is forced liquidity, often underestimated in public debate. In moments of market stress, investors tend to sell what they can offload most quickly, not necessarily what they would prefer to liquidate. As a highly liquid asset, gold becomes in these moments an immediate source of cash to cover margin calls, rebalance portfolios, or rotate into assets perceived as more rewarding in the short run. In a context where overall system liquidity could also be drained by extraordinary events such as the IPOs of large technology companies, it is plausible that part of the pressure on prices reflects a tactical reallocation rather than a structural shift in how the metal is valued.

Why this time could differ from previous cycles

What would make the current moment potentially distinct from past corrections is the convergence of several variables that show no signs of resolving in the short term. US public debt is not on a credible path toward reduction. Inflationary pressures appear to have structural roots tied to the fragility of global supply chains and the volatility of energy markets, factors that do not dissolve in response to a single favorable monthly report. Emerging-market central banks would continue to see gold as a credible reserve alternative to the dollar, in a world where geopolitical fragmentation makes foreign-currency reserves less safe than they were once perceived to be. For this kind of institutional buyer, short-term price swings could even represent an opportunity to add to reserves on more favorable terms.

For that reason, the paradox of gold near its lows with inflation at 4.2% could turn out, in hindsight, to be one of those moments that more reflective investors remember as a temporary window of opportunity. Not because a rebound is guaranteed, nor because the risks are negligible, but because the distance between the short-term narrative and the structural fundamentals rarely stays this wide for long without the market tending to pull the two back together.

Editor’s note

This article was originally published in Italian on money.it by Tommaso Scarpellini on June 23, 2026 as «L’oro che crolla mentre l’inflazione sale al 4,2% contraddice tutto ciò che si sapeva sui beni rifugio». It has been translated and adapted for an international audience by the Money.it International desk.