Blasé Capital Gold’s Playbook

Gold’s dramatic journey over the past year challenged conventional wisdom, as it delivered both record-breaking highs and sharp corrections. A report by Axis mutual fund, “When Gold Broke the Playbook: Detour in a Long Journey,” captures this cycle. The rally through 2025 and early 2026 was nothing short of historic. Prices surged to nearly $5,600 per ounce. As the report notes, “Precious metals have been on a rollercoaster,” with gold benefiting from “safe-haven buying, de-dollarization, easy liquidity, and geopolitical risks.” A weak dollar, abundant global liquidity, and strong central bank demand created a perfect environment for gold’s ascent. Central banks alone added nearly 1,000 tonnes over three years. The report emphasises that “many emerging market central banks have been ramping up gold purchases to reduce their reliance on the dollar.”

However, the rally proved fragile. By Q1-26, gold experienced a steep reversal, falling 20-25 per cent from the $4,100-4,300 range, which itself was 25 per cent lower than the earlier peak. Indeed, as the report states, “gold had given up all its year-to-date gains… a drop of about 20–25% from the peak.” The correction was triggered by unwinding of leveraged positions, while geopolitical tensions drove oil prices higher, and fuelled inflation fears. This led to tighter liquidity, and a stronger dollar. The result was a sharp decline across precious metals, with gold witnessing its steepest weekly fall since 1983.

The report outlines two possible scenarios in the future. In the first scenario, persistently high oil prices may keep inflation elevated, prompting central banks to maintain tight monetary policy. This will support a stronger dollar and higher bond yields, both of which are typically negative for gold. In contrast, if oil prices stabilise, and inflationary pressures ease, expectations of rate cuts can return. This will weaken the dollar, and restore liquidity conditions historically favourable for gold. There are a few early signs of recovery, as “speculative positions have started to build again, anticipating a comeback.” This suggests that investors are beginning to re-enter the market at lower levels. Geopolitics will remain another critical variable. Any escalation in global tensions, despite the temporary ceasefire, or risks to growth may revive gold’s safe-haven appeal.

Despite the recent volatility, the long-term case for gold remains compelling. The report underscores that the broader narrative has not fundamentally changed: “Gold’s 2025 rally was built on trust… [while] the early 2026 sell-off was driven by fear.” It concludes that “for now, gold’s lustre is tempered by a resurgent dollar and high interest rates. Yet the long-term story… remains intact.” In essence, gold’s behaviour may have “broken the playbook” in the short term, but its role as a store of value and hedge against uncertainty remains firmly in place.

While the long-term case remains intact, several headwinds could limit upside or even pressure prices in the near term. A stronger US dollar, and higher real interest rates are among the most significant negative factors. If monetary policy remains tighter than expected, gold may face resistance. Improving geopolitical conditions, like the end of the Iran war, can reduce safe-haven demand, leading to softer prices. Similarly, a sustained recovery in equity markets may draw capital away from gold, as investors shift towards higher-growth assets. There is the risk that much of the positive macro narrative may already be priced in. If expectations do not materialise fully, gold can see an ongoing phase of correction or prolonged consolidation. After a strong rally, the possibility of technical pullbacks cannot be ruled out.

Like is the case with crude oil, and other commodities, the bullion’s long-term outlook may be constructive, but driven by extreme and sudden volatility. News, events, statements, and hints will drive sentiments, as is the case with the stock markets, and other assets. Hence, in the near term, the yellow metal may go through phases of consolidation or even sharp drawdowns. After a strong rally, periods of sideways movement are not only likely but healthy for the market. In many cases, the sideways turn southwards, as investors react due to fears, doubts, apprehensions, and uncertainties. Rather than expecting a continuous upward trajectory, investors need to prepare for volatility over the next six to twelve months. Obviously, the elevated valuations suggest that future returns may moderate, and price movements can become more range-bound unless they are triggered by major macro or geopolitical announcements and developments. See the ongoing phase as a period of consolidation rather than a reversal of the long-term trend. One can sell on new highs, and buy on lows. Historically, gold has moved in cycles, and such pauses often follow strong upswings.

However, always remember that gold, which was once regarded as only a hedge or safe-haven asset, or for savings, has emerged as an asset class. Its ossession works best as a supporting component, not the main one, within a diversified portfolio. A typical allocation, say experts, needs to be 10-15 per cent, which is considered adequate for most investors, and provides meaningful hedging benefits without overexposure to a non-yielding asset. Hence, do not go overboard on gold, merely because there is a thrill in expectations. In the end, a portfolio needs to incorporate all the assets.