Gold: a spectacular plunge… at the heart of an intact bull market

Some sessions leave a mark on a generation of investors. Friday's was one of them. Gold wobbled with rarely seen brutality: slumping as much as -12% intraday, before trimming losses to close down around 8.5%. Such a fall had not been seen in thirteen years, immediately reviving the old debate: are we witnessing the end of the bull cycle, or simply a violent correction within a structural uptrend that remains intact?

This move reflects a volatility and liquidity shock, amplified by technical mechanisms, far more than a shift in the monetary regime. 

 

The catalyst: the Fed, again and always

The immediate trigger is political: Donald Trump's nomination of Kevin Warsh as candidate to chair the Federal Reserve. Warsh is seen as a proponent of a stricter doctrine: monetary discipline, balance-sheet control, institutional reform. The markets' reaction was almost mechanical: a moderate rise in the USD, a pullback in gold and bitcoin, and a repricing of rate risk. Yet, this market reflex should not be overinterpreted. First, the drop still fits within a year that remains broadly positive: gold is still up 13% so far this year. Second, monetary policy expectations have not hardened: markets still price roughly 53bp of rate cuts by the end of 2026, and a slight additional easing (around 5 basis points) was even added after the announcement. In other words: the event shocked the price, not the macro trajectory.

 

The real drivers: profit-taking, liquidity, margin calls

As is often the case during excess phases, several forces combined together. On the one hand, profit-taking after record highs, and on the other, more fragile liquidity in futures markets. And finally, a decisive factor: margin calls and higher collateral requirements. The CME Group raised margins on COMEX gold futures contracts from 6% to 8% following the recent turbulence. This kind of adjustment is not neutral: it mechanically reduces available leverage, forces liquidations, and fuels non-discretionary selling. It is a self-reinforcing short-term mechanism that can trigger outsized moves relative to fundamentals. 

 

Lessons from history: gold bull markets don't die from a correction

Past cycles provide a valuable benchmark. Major gold bull markets do not end because fear fades or because prices become too high. They end when the central bank fully restores its credibility and installs a new monetary regime. Two emblematic cycle endings illustrate this point. In 1980, the break came from the Volcker shock: aggressive tightening, a surge in real rates, falling inflation expectations, and a sustained appreciation of the USD. In 2013, momentum reversed when the Fed convinced markets it could withdraw quantitative easing without triggering a crisis: real rates stopped falling and confidence in normalization destroyed the hedging premium. In contrast, interim corrections have already punctuated major cycles. In 1974, gold fell alongside rising real rates, before roaring higher between 1976 and 1980 as inflation and doubts about monetary policy resurfaced. The same logic played out in 2020: a pause and then a pullback as COVID stress temporarily eased, before a renewed advance in 2024 because the underlying causes (debt, constraints on economic policy, fragile credibility) remained. 

 

Where do we stand today? 

The current setup looks more like an advanced mid-cycle phase than an end-of-cycle: structural gains, fresh highs, but with regular 5%-8% air pockets. And above all, the conditions that have historically signaled the end of a bull market are not in place: no lasting rise in real rates, no structurally stronger USD, no clear geopolitical easing, no fully restored monetary credibility. Here, Warsh does not (at this stage) have the credibility capital or political capacity to impose an abrupt break. Moreover, any regime shift requires consensus within the Fed, in a context where quantitative tightening is officially set to stop on December 1, 2025. 

 

Consolidate, then aim higher?

Gold has corrected and could tread water in the near term as the volatility shock is absorbed and margin adjustments play out. However, beyond that, upside potential remains. The demand observed and reported by the World Gold Council reinforces this view. As such, gold should no longer be seen as a "momentum” investment, but rather as a long-term strategic hedge. A portfolio allocation still looks attractive for investors with a structural affinity for the metal. The market has just reminded us that gold, despite being viewed as insurance, is not actually a risk-free asset.