According to Zhitong Finance APP, in recent weeks, gold prices have soared to unprecedented highs, and even die-hard gold investors warn that this rapid rise has gradually spiraled out of control. However, with the recent significant drop in gold prices, they still firmly believe that the long-term bull market for gold is not over.
Kevin Smith, who manages the $420 million hedge fund Crescat Capital, has been bullish since gold prices fell below $1,500 per ounce in 2019. Despite a 6.5% plunge in gold prices over the past two days, approaching the $4,000 mark, he still believes that now is the time to buy.
Concerns about the expanding fiscal deficit are just the latest driver of gold's safe-haven demand in this round—previously, gold prices had repeatedly broken records, attracting retail speculators chasing bubbles. Long-term investors like Smith view this week's pullback as a healthy adjustment, pointing out that many core factors driving gold prices remain intact.
&#34;There's no doubt that gold prices were a bit overextended before,&#34; he admitted in a phone interview, &#34;but considering the unsustainable debt and deficit imbalances still present in the U.S. and most developed countries, the fundamental environment for gold remains very favorable.&#34;
The central bank's gold-buying spree is a long-term driver supporting this round of gains. The market generally believes this pushed gold prices to break through $3,500 last month, and industry insiders widely expect that even if short-term investors withdraw, official buying power can effectively provide a floor.
&#34;Those 'weak hands'—institutional and retail funds—have only been in the market for about six weeks. This round of gains has mainly been driven by 'strong hands',&#34; said Ross Norman, a veteran in the metals industry and head of the pricing and analysis website Metals Daily. &#34;I believe that some of the 'weak hands' have definitely been washed out.&#34;
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Compilation data shows that over the past five weeks, gold ETF holdings have increased by 4.2 million ounces to nearly 100 million ounces, continuing the growth trend since the end of May. Since the financial crisis, central banks around the world have been steadily increasing their gold reserves; after the U.S. and its allies froze Russian assets in 2022, the pace of central bank gold purchases accelerated by a factor of two.
&#34;After the outbreak of the Russia-Ukraine conflict, we saw a significant change in the gold-buying behavior of major central banks, which have clearly become key long-term buyers in the market since then,&#34; said Andrew Matthews, head of precious metals distribution at UBS, in an interview on Tuesday (before the drop in gold prices). &#34;We believe this situation will continue.&#34;
This year, the Trump administration's radical measures to reshape global trade and geopolitical uncertainties have fueled the upward trend, while expectations of interest rate cuts by the Federal Reserve have enhanced the attractiveness of gold relative to interest-bearing assets, and Trump's threats to the independence of the central bank further reinforced its safe-haven attributes.
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The subsequent emergence of &#34;sovereign credit devaluation trading&#34;—the act of selling sovereign debt and its denominated currency due to concerns over the loss of purchasing power—has led retail investors to play a more significant role in the recent market: the inflow of funds into gold ETFs favored by Western institutions and individuals has surged, options trading volume has climbed in tandem, and photos of long queues outside gold shops on social media have quickly gone viral.
&#34;For many institutional investors, this has become the last straw,&#34; said Jane Foley, head of foreign exchange strategy at Rabobank. &#34;It's clear that I think it's difficult for gold prices to return to recent highs in the short term.&#34;
A series of technical indicators on Tuesday showed that too much money had flowed in over too short a time, increasing the risk of a pullback, and the sharp rise in gold prices came to an abrupt halt. Spot gold plummeted 6.3%, marking the largest drop since 2013.
On that day, gold prices also faced multiple pressures: a stronger dollar, waning demand from Indian festivals, and signs of easing in the China-U.S. trade deadlock. However, Jerry Prior, CEO of Mount Lucas, which manages a $1.7 billion hedge fund, believes that the long-term support for gold &#34;remains solid,&#34; and he expects gold prices to fluctuate within a narrow range, potentially dipping below $4,000 before rebounding due to safe-haven demand and economic data re-attracting buyers.
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Although this round of pullback is astonishing for gold, an asset that typically has stable movements, the price has only returned to levels seen a little over a week ago. Gold prices are still on an upward trend this month, with a cumulative increase of about 55% for the year.
&#34;This drop in gold prices is likely some form of consolidation; the decline is indeed significant, but it has only fallen to a one-week low,&#34; said Giovanni Staunovo, a commodity strategist at UBS, on Tuesday. &#34;I still believe that the structural bullish logic for gold remains unchanged, and such consolidation is likely healthy for gold.&#34;

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Gold prices have recently fallen sharply, but long-term investors remain optimistic about the gold market. Despite gold prices soaring to historical highs in the past few weeks, Kevin Smith of Crescat Capital believes now is the time to buy, pointing out that the fundamentals for gold remain favorable. The central bank's gold buying spree and concerns over fiscal deficits are important factors supporting gold prices. Market analysts indicate that although short-term investors may withdraw, official purchasing power can still effectively support gold prices

The sharp drop in gold prices cannot scare away the "dead bulls" in gold