Gold had one of the best years on record in 2025, rallying about 72% and setting multiple all-time highs. In late January, the precious metal surged past $5,000 and came within a few dollars of $5,600.
That feels like ancient history now. Gold has retreated to under $4,400, a 22% decline from those January peaks. The question investors are asking: is this a dip to buy, or is there more downside ahead?
The answer depends on whether you’re thinking short-term or long-term.
Why Gold Rallied So Hard in 2025
Understanding what drove gold higher helps explain why it’s fallen. The rally began in late 2022 after Russia’s invasion of Ukraine and the U.S. response of freezing Russia’s foreign exchange reserves.
That sent a message to the world: holding dollars and keeping reserves in dollar-denominated assets carries geopolitical risk. Central banks responded by diversifying away from dollars and into gold.
For years, central banks accumulated gold reserves at a pace not seen in decades. That buying pressure, combined with broader geopolitical uncertainty and concerns about currency debasement, pushed gold to new highs through 2025.
The January peak around $5,600 represented the culmination of three years of central bank accumulation and safe-haven demand.
What Caused the Crash
The Persian Gulf war that began in late February changed the equation. When geopolitical stress erupts, investors typically flee into dollars, not gold. That’s counterintuitive but it’s how markets actually work.
The U.S. dollar index, which measures the dollar’s value relative to other currencies, is up about 3% since the day before the war began. That matters because gold is priced in dollars globally. When the dollar strengthens, gold becomes more expensive in foreign currencies, which suppresses demand.
Additionally, war has pushed oil prices higher, which has driven inflation expectations higher. The Federal Reserve is getting more hawkish in response, likely planning rate hikes later this year.
Rising interest rates are brutal for gold. It’s a non-yielding asset that pays no interest. When you can earn 4-5% on Treasury bonds, holding gold that earns nothing becomes less attractive. The opportunity cost matters.
Central banks have also been forced to sell gold reserves to stabilize their own currencies amid the conflict. Turkey notably sold gold to defend its currency. When central banks sell instead of buy, that removes a major bid from the market.
All of this combined to erase nearly two years of gains in just a few months.
The Short-Term Picture
In the near term, gold’s price will be tethered to the Iran war. As long as the conflict persists, the dollar likely stays strong and interest rates remain elevated. Both are headwinds for gold.
If the war concludes, several things could change quickly. Oil prices would retreat from their spike, removing inflation pressure. The dollar would likely weaken as the immediate geopolitical fear premium evaporates. And interest rates could stabilize or even decline if inflation comes down.
That combination—weaker dollar, lower rates, no war premium—would be bullish for gold. You could see a rebound toward $4,800-5,000 relatively quickly if the conflict ends.
But that’s a timing call, and timing is hard. The war could persist for months or even years. In that scenario, gold stays under pressure.
The Long-Term Case for Gold
Despite the short-term headwinds, the longer-term fundamentals for gold remain intact.
Central banks around the world still want to reduce their dollar exposure. The 2022 freezing of Russia’s reserves demonstrated that geopolitical risk to holding dollars and dollar assets is real. That drive to diversify hasn’t gone away. It’s just paused by the immediate crisis.
Once the Iran conflict concludes and geopolitical tensions ease, expect central banks to resume accumulating gold reserves. That secular trend—the shift away from a dollar-centric reserve system—will continue for years.
Additionally, gold remains one of the most effective hedges against large market pullbacks and chaos. Every portfolio benefits from some gold exposure, if only as insurance.
A 5-10% gold allocation provides meaningful portfolio diversification without requiring you to time market movements perfectly. You own it for the rare but important moments when everything else is falling apart.
Is This a Buying Opportunity?
Whether to buy gold here depends on your time horizon and your view of the war.
If you think the Persian Gulf conflict ends within the next few months and believe central banks will resume diversification, then gold under $4,400 looks cheap compared to the $5,000+ you could see in 12-18 months. In that case, buying here makes sense.
If you think the conflict persists and the Federal Reserve hikes rates aggressively to combat inflation, then gold could drift lower toward $4,000 or below. In that case, waiting for a better entry point makes more sense.
The honest answer: nobody knows how long the war lasts or how aggressive the Fed will be. If you have a 3-5 year time horizon and believe in the long-term central bank demand story, price becomes less important. Buy a small position and add more if it falls further.
If you’re a trader trying to catch the bounce from current levels, that’s a different game. You’re betting on the war ending soon, which is much riskier.
How to Get Exposure
If you decide to buy gold, you have options. Physical gold (coins, bars) is straightforward but requires storage and insurance. ETFs are more convenient.
The SPDR Gold Shares ETF (GLD) is the world’s largest physically backed gold fund. It holds actual gold bars in vaults, so you’re owning real gold with the convenience of trading a stock.
The VanEck Gold Miners ETF (GDX) is another option if you want leveraged exposure. This ETF owns companies in the gold mining industry. Gold mining stocks are more volatile than gold itself, but they provide additional upside when gold prices rise because mining margins expand.
The Real Question
The real question isn’t whether gold at $4,400 is cheap or expensive compared to January. It’s whether you believe in the long-term shift away from dollar dominance and central bank diversification into gold.
If you do, then temporary weakness from geopolitical events is an opportunity. If you don’t, then gold at $4,400 is just as overvalued as it was at $5,600.
History suggests central banks will continue diversifying away from dollars for years to come. But history also suggests wars can persist longer than anyone expects, and interest rates can stay higher than we’d like.
This is a long-term position. Price your conviction accordingly.
