Gold Prices Tumble 26% But Retail Investors and Central Banks Keep Buying

International gold prices have plummeted 26% from their peak of $5,595 per ounce earlier this year, now sitting around $4,135. This decline has particularly impacted South Korea, where spot prices on the KRX Gold Market have dropped 27.7%, and gold banking balances at major banks have shrunk by 31.6%. Despite these losses, retail investors continue to show interest, with gold bar sales at the five largest banks stabilizing around 30 billion won ($22.3 million) per month. Banks are expanding their supply chains to meet this demand, even as physical gold demand has cooled.

The Bank of Korea is also entering the market with its first physical gold purchase in 13 years, aiming to diversify its foreign exchange reserves. This move contrasts with the short-term strategies of retail investors, who are bargain-hunting in anticipation of a future rebound. Goldman Sachs maintains a bullish outlook, forecasting an end-2027 gold price of $5,400, but warns that rising U.S. interest rates and prolonged monetary tightening could pose risks to any rebound.

Analysts recommend a dollar-cost averaging approach to investing in gold, given the uncertainty surrounding its price trajectory. While central bank buying continues to support demand, the impact of global rate increases and investor sentiment shifts remains a key factor in the market's future direction.