Gold Drops 26 Percent from Peak Amid Strong Central Bank Demand

Gold prices have dropped 26% from their peak in January 2026, falling from $5,595 to $4,138 per ounce. This correction has been driven by higher US Treasury yields and a stronger dollar, rather than any weakening of gold’s core fundamentals. Despite this decline, strong demand from central banks, particularly from China and emerging markets, continues to support gold. Central banks purchased 289 tonnes of gold in the second quarter of 2026, with full-year estimates ranging from 700 to 900 tonnes, well above the pre-2022 average.

Gold ETF inflows have shown early signs of stabilization after significant outflows earlier in 2026. India’s gold ETFs saw positive net inflows of $156.8 million in July and $260.2 million in August, following a modest outflow in May. Geopolitical risks, high US government debt, and fiscal deficits further strengthen gold’s role as a safe-haven asset.

Silver also faces a structural supply deficit for the sixth consecutive year, with demand outpacing supply. Industrial demand, particularly in China, which controls a significant portion of global silver reserves and refining capacity, is a key driver. While near-term price volatility may persist, the long-term outlook for silver remains positive due to rising industrial usage and supply constraints.

Investors considering gold and silver ETFs may find the current correction a better entry point, especially given the medium-term support from central bank demand and geopolitical uncertainties. A staggered investment approach could help manage short-term price swings while building long-term exposure.