The Paradox of Gold | When the Hedge Failed Its Test

The metal rallied 64 percent through 2025, peaked above $5,500 in January, then lost nearly 12 percent in March as the West Asia conflict unfolded. The mechanics behind the selloff matter more than the headline.

Gold's drawdown during a textbook geopolitical shock has unsettled investors who treated bullion as a reflexive hedge. The mechanics, however, were rational: a dollar-funded oil bid drained reserves out of gold, while real yields backed up as priced-in 2026 rate cuts evaporated.

The structural bid from emerging-market central banks remains intact, with official-sector demand having doubled as a share of bullion offtake since 2022. Profit-taking after a parabolic January explains more of the March move than any breakdown in the long-term thesis. Sell-side targets cluster between $5,400 and $6,300 for 2026. For allocators, the question is no longer whether to own gold but whether to own bullion, miners, or both — and how to size against TIPS at a 1.9 percent real yield.

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