Wall Street Bullish on Gold Against the Trend? Is Gold Really Worth Buying After 20% Slump?

TradingKey - The ongoing geopolitical volatility in the Middle East is roiling the global commodity landscape in ways that exceed market expectations—gold, long considered a "safe haven" ( XAUUSD ), has recently seen a rare synchronized decline with risk assets like U.S. stocks and crude oil, completely shattering investors' long-held perceptions of its safe-haven status.

However, most mainstream Wall Street institutions have not wavered in their long-term bullish outlook. Instead, they characterize this plunge of over 20% as a "market dislocation caused by short-term liquidity shocks," viewing it as a rare entry window for medium-to-long-term investors.

Is the Sharp Drop in Gold Prices a Failure of Its Safe-Haven Status?

Current gold prices have dropped more than 20% from their January highs, technically confirming an entry into bear market territory.

The synchronized decline of gold and risk assets this time is not due to a failure of its safe-haven status, but rather the result of the market's unique positioning structure and liquidity demands.

Citigroup ( C) Bank noted in an in-depth research report released March 23 that the primary force driving gold from $2,500 to $5,600 per ounce over the past 12 months was not central bank buying in the traditional sense, but momentum-driven inflows from retail and ETF investors.

Data show that global gold ETF holdings increased by 1,200 tons in 2025, while central bank purchases were only 863 tons, a 12% decline from the previous year.

This retail-heavy positioning structure makes gold highly susceptible to becoming a 'liquidity ATM' during periods of market turmoil. Citigroup cited historical data showing that in the early stages of major market corrections—such as the 2000 dot-com bubble, the 2008 financial crisis, and the 2020 COVID-19 shock—gold often declines alongside risk assets, typically bottoming out 1-2 weeks before equities stabilize.

Since the conflict erupted on Feb. 28, the U.S. Dollar Index has strengthened by approximately 3%, further exacerbating selling pressure on gold. Market participants noted that in the early stages of geopolitical conflicts, investors often prioritize liquidating highly profitable and liquid assets to raise cash, making gold—which had previously seen significant gains—a primary target.

The long-term bull market logic for gold remains unchanged.

Despite the sharp short-term decline in gold prices, most institutional analysts have not turned bearish on the long-term outlook, instead characterizing this pullback as a "buying opportunity."

Ed Yardeni, founder of Yardeni Research, maintains his long-term projection that gold prices will hit $10,000 by the end of the decade, making only a slight downward revision to his year-end 2026 target from $6,000 to $5,000—a level that remains approximately 15% above current prices.

Justin Lin, investment strategist at Global X ETFs, focuses his bullish thesis on structural support rather than risk premiums stemming from short-term geopolitical conflicts. He believes that the long-term persistence of global geopolitical uncertainty, steady gold-buying demand from emerging market central banks, and sustained capital inflows from Asian gold ETF investors are the core drivers pushing gold prices higher. Particularly following the gold price correction, the increased likelihood of central banks ramping up their purchases is expected to serve as a market stabilizer.

Shaokai Fan, CEO of the World Gold Council (WGC) for Asia-Pacific, stated at the Canberra Mining Week event on Tuesday that gold, as a tool to hedge against de-dollarization and geopolitical risks, is attracting more central banks that have long been absent from the market.

In recent months, central banks in countries such as Guatemala, Indonesia, and Malaysia have begun purchasing gold, a trend that is expected to continue through the end of 2026.

Although the WGC previously projected that global central bank gold purchases would decrease slightly from 863 tonnes in 2025 to 850 tonnes in 2026, Shaokai Fan noted that the recent slump in gold prices could stimulate central banks to increase their buying activity. During the gold sell-off in October 2025, central banks purchased approximately 200 tonnes of gold, acting as a crucial support for the market.

Rajat Bhattacharya, Senior Investment Strategist at Standard Chartered, holds a similar view, suggesting that reserve diversification needs from emerging market central banks and investor allocation demand amid geopolitical risks will provide long-term support for gold prices.

The bank expects that once the current deleveraging cycle concludes, gold prices could rebound to $5,375 within the next three months, with technical support seen around $4,100.

Furthermore, a weakening U.S. dollar will be the key catalyst for a gold price rebound—the market widely expects the Federal Reserve to begin cutting interest rates in the second half of 2026, which will directly drive dollar depreciation and subsequently support gold prices.