Investors to pay the price of gold bubble

Gold prices recorded the steepest daily fall in five years on Tuesday, as investors booked profits. Spot price was down 5.5% to a one-week low of US$4,115.26 per ounce at1745 GMT, its steepest fall since August 2020. Prices scaled an all-time peak of US$4,381.21 on Monday and have gained about 60% this year, bolstered by geopolitical and economic uncertainty, rate-cut bets and sustained central bank buying.

Readers may recall that in my post titled “Warning for Gold Investors” dated September 30, 2025 I had informed the investors taking significant position not to panic, but keep close watch on the commodity market, especially gold. By that time the precious metal had rallied more than 10% this month, but took a breather after reaching another record early Tuesday, last trading day of the month. The prospect of an imminent United States government shutdown added to the metal’s appeal as a safe haven investment. 

Gold’s dramatic fall has exposed the fragile foundations beneath its record-breaking rally. The message is clear: even gold, long considered a bastion of stability, is not immune to engineered market forces.

One cannot ignore the role of central banks in this saga. In recent months, major central banks ramped up gold purchases aggressively, creating artificial demand and fueling a meteoric rise in prices. While presented as prudent diversification and a hedge against inflation, these purchases effectively inflated a bubble, enticing private investors to chase gains without understanding the underlying dynamics.

Profit-taking by investors was inevitable once the price peaked. The frenzy generated by central banks had drawn private money into the market, but when the momentum stalled, those same investors rushed to lock in gains, triggering the sharp correction.

Compounding the drop, the US dollar strengthened, making gold more expensive for international buyers. Meanwhile, geopolitical tensions—the usual excuse for gold’s safe-haven appeal—have eased, and seasonal demand from India’s post-Diwali slowdown further weighed on the market. Analysts also note that prices had become technically overbought; the correction was overdue.

This episode exposes a fundamental truth - gold’s recent highs were less about organic demand and more about engineered interventions. Central banks, in effect, played puppeteer, manipulating sentiment while ordinary investors bore the brunt of volatility.

Despite the fall, gold remains up roughly 60% for the year. The long-term narrative of gold as a hedge against uncertainty remains, but this correction is a warning - markets can be steered to extremes by institutional players, and what shines today may be a bubble tomorrow. Investors chasing gold’s glitter must remember—it is not immune to human engineering.