Gold’s selloff in three acts: Why the next act could surprise you

Gold, silver and mining stocks soared and tumbled over the past five months, taking investors on an emotional rollercoaster complete with the thrills of the peaks and the despair of the troughs.

Words can’t describe the ride, but if you were invested in this space, you’d know exactly what I mean.

As the financial year just ended on a low note, many had hoped to have seen their portfolio end as good as it was at the close of 2025. That wasn’t the case. What we saw in these months truly tested even the most experienced veteran.

Yet what sets the veteran apart from those who joined the precious metals bandwagon when gold climbed to record highs last year is knowing when to hang on rather than give up.

If you’re a precious metals investor feeling a little glum looking at your portfolio right now, I understand. Recency bias is a powerful thing — we remember the last few painful months far more vividly than the extraordinary run that preceded them.

Today’s article covers two things. First, we’ll explore why precious metals have pulled back so hard. Second, I’ll reveal why I think the market has overreacted — and what could be the catalyst that turns this around.

Understanding both will help you position yourself for the coming recovery in the precious metals space later this year.

A textbook selloff, in three acts

Gold and silver rocketed higher from last September through to a blistering peak in the final days of January:

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Then came the flash crash, followed by the Iranian conflict. To top it off, three months of grinding pain that tested the patience of even the most seasoned precious metals investors.

What we’ve been through isn’t random. It’s almost a textbook pattern.

Act one was the flash crash — a brutal, fast unwind after gold pushed to euphoric highs at the end of January. Act two came when the conflict between Israel, the US and Iran broke out. Oil spiked, dragging precious metals down in the crossfire. Act three has been the slow, grinding tumble since — less dramatic, but more painful as it lingered and provided false hopes along the way.

If you thought the moves for gold and silver were dramatic, the gold stocks (producers, developers and explorers) had a wilder ride!

Here’s the ASX Gold Index [ASX:XGD] that tracks the more established producers and late-stage developers:

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These gold stocks held up better in act one, but took a pounding in act two, limping through the third act. On average, individual companies fell by around 35% from their highs earlier this year. However, to the relief of their holders, they appeared to have recently found a bottom.

Meanwhile, the speculative end of the market — the explorers, the early-stage developers — has kept falling even as the big names steadied:

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The index masks the precipitous drops of individual companies. Some have dropped by almost two-thirds from their highs! That’s a gut punch for anyone holding the riskier end of this sector.

Five reasons gold lost its shine

So why has this happened? In my view, it’s not one single cause, but five forces converging at once, namely:

1. The US dollar came roaring back. The US Dollar Index [DXY] pushed back above 100 on expectations that the Federal Reserve may raise rates this year rather than cut them:

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2. The war premium deflated. With the US and Iran extending a ceasefire to negotiate terms, the market has priced out the risk of a full-scale, prolonged war. That war premium had been propping up gold — and its unwind hit the price hard.
3. Capital chased the AI and tech bubble instead of safety. Rather than flee to gold as the classic safe haven, investors have piled into AI and technology stocks, treating the US dollar — not gold — as their refuge of choice in this environment:

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4. Central bank gold sales added pressure. Some nations have been liquidating portions of their gold reserves to fund oil purchases at elevated prices during the conflict, adding a further layer of selling momentum that traders piled onto.
5. Australian investors did their end-of-financial-year selling. As always happens this time of year, local investors offloaded positions — including in gold stocks — ahead of 30^th June, adding one more short-term headwind on top of the other four.

Call it a perfect storm. Five separate forces simultaneously pulling gold, silver and gold stocks down.

The signal to watch closely

Momentum investors and chartists have been pessimistic about gold and precious metals assets. The markets seemed to have sided with them, given the selling action in the recent months.

Here’s where I want to push back against the prevailing mood. For one, precious metals investors don’t view their strategy in financial year terms. They plan across the gold price cycle that lasts several years, possibly reviewing their plans every financial year.

Moreover, the market is currently pricing in two assumptions: that Iran retains the upper hand and could send oil surging to fresh highs, and that the Federal Reserve is on track to raise rates this year.

I don’t share either view.

And it’s because of something I’m watching closely right now:

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Notice how oil spiked at the start of the conflict and tried to hold its gains before tumbling hard by mid-May. If oil continues to stay low — rather than spiking again on renewed Iranian conflict fears — it starts to unwind the very inflation narrative used to justify the case for further rate hikes.

Lower oil means less pressure on headline inflation. Less inflation pressure means less justification for the Fed to tighten. And a Fed that’s not tightening is exactly the environment in which gold and silver have historically thrived.

Right now, oil is cooperating. Those of you who’ve followed me for a while recall my article in early April where I laid out that the Trump administration’s approach to Iran has always been about the economy first. The goal is to secure the coming mid-term elections.

A blockade in the Strait of Hormuz, regardless of who controls the passage, will push the oil price higher and slow global growth, not just in the US. Extending the ceasefire has helped de-escalate the situation, especially as the chance of a full-scale war continues to diminish. Meanwhile, it has sparked further internal division in Iran, as I laid out in my recent article. This might be exactly what the Trump administration wants.

And oil has, by hook or by crook, stayed down since tumbling in late-April.

If this continues, it’s possible it could set the conditions to help push gold higher – a lower US dollar, falling real yields and softening inflation. This, in turn, spurs the gold-oil ratio to rise and reverse the bearish narrative currently gripping precious metals markets. Gold stocks would have the perfect setup for a rally.

What I’ve seen before

I’ve been in this game long enough to recognise a pattern.

Come July, the trend tends to slowly shift. By September, it can feel like a completely different market. That’s what we’ve experienced in each of the last three years with gold and the more established producers:

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Silver and the smaller stocks are typically late to the party — but when they turn, they more than make up for lost time with an explosive move higher.

I’m not promising that history will repeat. But looking at how the pieces are lining up — the dollar, the war premium, the oil price, the Fed’s next move — I like the odds.

How I’m positioning for the turnaround

So, a new financial year is upon us.

Right now, the charts currently say give up. But when a selloff looks this overdone against companies with genuine project quality and progress, the real opportunity is usually sitting in plain sight. This is where you should be building your positions while prices are attractive.

If you’d like to find out which gold stocks are best positioned heading into this new financial year — and get my ongoing analysis as this turnaround unfolds — I can help you get started on buying some undervalued gold producers in The Australian Gold Report. Members of that service get regular updates from me on how the five forces are tracking.

Now is a great time to jump on board. You can find out more about this service by clicking here.

That’s it from me this week. Here’s to a better financial year ahead.