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Consumers check gold accessories at a gold store in Changzhou, East China's Jiangsu Province, on February 2, 2025. Photo: VCG

After prices surged toward the $3,000 per ounce mark, gold prices have experienced a sharp plunge, taking a dive from its highs, according to media reports. However, the gold "bull market" may not be finished yet as many central banks are diversifying their reserve assets in order to mitigate risks from the US, according to analysts on Sunday. 

COMEX gold futures dropped 1.76 percent, settling at $2,893.7 per ounce on Friday, marking the largest single-day decline since the beginning of this year's rally. Spot gold in London also fell 1.66 percent, closing at $2,882.14 per ounce. Despite the sharp drop on Friday, gold still posted a seventh consecutive week of gains, according to Reuters.

The rise in international gold prices is being driven both by risk-off sentiment and by the process of de-dollarization. The US Federal Reserve has implemented quantitative easing in every cycle, even resorting to unlimited quantitative easing in recent years. As the supply of dollars increases, the price of gold in US dollars naturally rises, Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times on Sunday.

The market has started to question the credibility of the US dollar, especially as the US has used its global dominance of the dollar to impose sanctions on other countries. This has led many nations to seek ways to reduce their dependence on the dollar, Yang noted.

In addition, central banks around the world, particularly in emerging markets, have continued to increase their gold reserves, Wu Kaida, chief strategist at TF Securities' Research Institute, told the Global Times on Sunday.

Central bank gold purchases not only provide strong market support but also reduce the amount of gold available for trading. The share of US Treasury debt held by foreign and international investors is steadily decreasing, and a peak in US Treasury maturities is approaching in the coming years. If foreign central banks choose not to roll over maturing US Treasury debt, they may opt for gold as a replacement, diversifying their reserve assets and mitigating risk, Wu said.

The World Gold Council (WGC) predicted a moderate yet positive growth outlook for gold prices in 2025. "Upside could come from stronger than expected central bank demand, or from a rapid deterioration of financial conditions leading to flight-to-quality flows," read WGC's report on Gold Outlook 2025.

Global Times