Gold Falls Sharply as Dollar Strength Returns
Gold’s recent decline has highlighted a key tension for investors: a stronger U.S. dollar can weaken bullion in the short term, while also reinforcing the longer-term case for holding gold. That is the view of Paul Wong, managing partner and market strategist at Sprott Inc., who argues that the latest selloff must be understood through both cyclical market pressure and deeper changes in the global monetary system.
June Marks the Largest Monthly Drop Since 2008
In his latest monthly gold market analysis, Wong noted that spot gold lost 532.24 dollars per ounce in June, a decline of nearly 12%, and ended the month at 4,008 dollars. It was gold’s fourth consecutive monthly loss and its steepest monthly decline since October 2008.
Worst Quarter Since 2013
For the quarter ended June 30, gold fell by 660.04 dollars, or 14.14%. Wong said this was the weakest quarter for gold since the second quarter of 2013, when the Federal Reserve began its first rate-hiking cycle after the 2008 Global Financial Crisis.
Sentiment Turns Extremely Bearish
The scale of the decline pushed sentiment around gold into deeply bearish territory. Wong said the first wave of selling began after the signing of the Islamabad Memorandum of Understanding between the United States and Iran, which drove oil prices sharply lower and lifted the U.S. dollar.
Fed Interpretation Adds a Second Selling Wave
A second wave of pressure came after markets interpreted comments from new Federal Reserve Chair Kevin Warsh as hawkish following the June Federal Open Market Committee meeting. It was Warsh’s first FOMC meeting as Fed chair, making his tone especially important for market expectations.
Rate Hike Expectations Strengthen the Dollar
Wong said rising expectations for rate hikes pushed short-term yields higher and strengthened the U.S. dollar. For many quantitative traders, the combination of a dollar breakout and rising short-end rates created a bearish signal for gold.
Funds Extend Their Gold Selling
Investment funds had already been selling gold between March and May to unwind highly leveraged positions. Wong said selling continued in June as macroeconomic indicators weakened and sovereign-related buyers reduced their activity. Commodity trading advisors, quantitative funds and algorithmic strategies were major drivers of the steep June decline.
Gold May Have Priced In Much of the Bad News
Wong argued that gold’s selloff appears larger than the actual moves in the U.S. dollar and federal funds rate expectations. In his view, this suggests the market may have already discounted much of the negative impact from a stronger dollar and higher-rate backdrop.
Technical Pressure Reaches Extreme Levels
The first half of 2026 has brought gold into conditions similar to previous periods of extreme bearish sentiment. Wong noted that in June, gold fell below its 200-day moving average for the first time since October 2023 and reached extreme oversold levels.
Drawdown Hits Its Largest Level in a Decade
Over the past decade, gold has often found support when prices fell to about 90% of the 200-day moving average. Wong said the current drawdown has reached 26%, the largest in a decade and the biggest since the 2016 lows.
Dollar and Yields Shift the Market Narrative
The U.S. Dollar Index has risen 2.91% so far this year, while U.S. two-year Treasury yields have increased by 70 basis points. At the start of 2026, fed funds futures were pricing in 2.3 rate cuts for the rest of the year. That has now shifted to 1.5 rate hikes because inflation expectations have changed.
Warsh Faces a Policy Credibility Test
Wong said one of the biggest questions for markets is whether Kevin Warsh will act as a hawk or as a pragmatist. The issue is whether he will prioritize inflation control or respond to political and market pressure for lower interest rates.
A Resilient Economy Complicates the Fed’s Path
Warsh inherited an economy that remains stronger than many expected. Labor markets are solid, growth has held up, asset prices are elevated and inflation remains above the Fed’s 2% target. At the same time, President Donald Trump has repeatedly called for lower rates, creating tension between political expectations and economic data.
Debate Moves From Cuts to Possible Hikes
Wong said the market conversation has shifted away from rate cuts and toward potential rate hikes. He argued that inflation never truly disappeared, as job openings remain high, payroll growth has surprised to the upside, consumer spending is healthy and both manufacturing and services activity continue to expand.
Inflation Remains Sticky
Core PCE inflation is running around 3.3% to 3.4%, headline CPI inflation remains above 4% and services inflation continues to be difficult to bring under control. Wong also said the AI buildout is creating fresh inflation pressure through memory shortages and higher component costs that can feed into consumer prices.
Investors Still Believe in the Fed Put
Despite persistent inflation, many investors appear unconvinced that Warsh will remain strongly hawkish. Wong said markets continue to believe in the “Fed put”, the idea that a major decline in asset prices would eventually force policymakers to reverse course and lower rates.
Gold Benefits From Central Bank Tension
Wong argued that the growing conflict between inflation, politics and central bank credibility has historically supported gold. For bullion, the key question may not be the exact path of interest rates over the next few quarters, but whether the Fed can maintain its independence and keep price stability as its priority.
The Dollar Can Rally During a Secular Decline
Wong also updated his broader view on the U.S. dollar. He has long argued that the dollar is in long-term decline, not necessarily through exchange rates, but through its purchasing power and its role as the dominant store of monetary value.
Fiscal and Geopolitical Pressures Erode Dollar Dominance
Large fiscal deficits, rising debt, persistent monetary expansion, stronger central bank gold purchases and geopolitical fragmentation all point toward gradual erosion of the dollar-centered system. Still, Wong stressed that the dollar can continue to stage powerful cyclical rallies.
Dollar Rallies Pressure Gold and Commodities
Even if gold remains in a secular bull market, it can still experience sharp corrections alongside silver, copper, oil and other hard assets. Wong warned that a weakening monetary regime does not prevent periods of strong dollar performance.
Two Different Dollar Roles
Wong said investors need to separate the dollar’s role in global financial settlements from its role as a long-term reserve asset. The dollar remains essential to the global funding system, even as its position as the dominant monetary reserve slowly erodes.
Strong Dollar Creates Global Stress
Every major dollar rally increases pressure outside the United States. A stronger dollar raises debt-servicing costs for foreign borrowers, tightens global liquidity, increases funding costs and often forces traders to unwind leveraged positions and carry trades.
Dollar Strength Encourages Diversification
At the same time, dollar strength can push central banks to diversify reserves. Wong noted that countries are increasingly looking for ways to reduce dependence on a financial system that can be shaped by U.S. policy objectives. China has expanded alternative settlement systems such as CIPS and mBridge, while other countries are exploring regional trade and reserve diversification arrangements.
Gold’s Role in a Multipolar System
Wong believes gold is becoming a reserve asset for a more multipolar world. In his view, the likely outcome is not the replacement of the dollar by one competing currency, but the rise of a more diversified system in which the dollar remains important while gold serves as a neutral reserve asset between competing blocs.
Reserve Managers Want Fewer Dollars
Wong said reserve managers still need dollars, but they increasingly want fewer of them. That creates a long-term role for gold as a neutral asset that carries no political allegiance, no counterparty risk and no direct exposure to sanctions when held domestically.
Gold Moves Beyond Inflation Hedge
As geopolitical tensions rise and reserve diversification accelerates, central banks increasingly view gold as a strategic reserve asset. Wong said its role is evolving from an inflation hedge into a monetary hedge, a reserve asset and potentially a form of monetary collateral.
Gold Reserves Rise as Share of Global Reserves
Before Russia’s full-scale invasion of Ukraine, IMF data showed gold reserves averaging 12% of total world reserves since 2000. After the freezing or seizure of Russia’s foreign exchange reserves and rising concerns about currency and sovereign bond debasement, gold reserves climbed to a recent high of around 34% of total reserves before ending the quarter at 27%.
Why Gold Can Fall During Crises
Wong also addressed why gold sometimes sells off during financial stress. Investors often expect turmoil to lift gold automatically, but in acute funding crises, market participants frequently need dollars and sell liquid assets to obtain them.
Gold as a Source of Liquidity
Because gold is one of the world’s most liquid reserve assets, it can be sold during dollar squeezes. Wong said this happened during the 2008 financial crisis and the March 2020 pandemic shock, and could happen again. In his view, this is not a failure of gold, but part of its reserve function.
Short-Term Volatility, Long-Term Revaluation
Over long periods, gold and the dollar can rise for different reasons. Gold can gain because of demand for a neutral reserve asset and store of value, while the dollar can strengthen because of its central role in global funding. In the short term, however, gold still often moves inversely to the U.S. Dollar Index.
Corrections Can Coexist With a Bull Market
Wong cautioned that the dollar can remain strong even as its long-term dominance declines. Likewise, gold can suffer meaningful corrections while staying in a secular bull market. The cyclical trend is shaped by dollar rallies, tighter liquidity, commodity weakness and gold pullbacks.
Dollar Strength May Reinforce Gold’s Future
The secular trend still points toward reserve diversification, central bank gold buying, alternative payment systems and a gradual decline in the dollar’s share of global reserves. Wong’s central argument is that these forces are not contradictory. Each episode of dollar strength may increase the incentive to diversify, while each diversification effort strengthens gold’s long-term role as a neutral monetary asset.
