Sprott's Paul Wong says gold's steep first-half correction sits inside a longer-term monetary shift: as reserve managers diversify, gold is becoming the neutral reserve asset linking competing currency blocs. He argues a stronger dollar pressures gold short-term while reinforcing its long-term case.
A stronger U.S. dollar can pressure gold in the short term while ultimately strengthening gold's long-term investment case, according to Paul Wong, managing partner and market strategist at Sprott Inc. He says gold's role as one of the world's most liquid reserve assets means it often serves as a source of liquidity during funding stress.
A quarter of heavy selling
Spot gold lost $532.24 per ounce in June — nearly 12%, finishing the month at $4,008 for its fourth consecutive monthly loss. According to Kitco News, Wong called it "the largest since October 2008." For the quarter ended June 30, gold fell by $660.04, or -14.14%, the worst quarter since the second quarter of 2013.
Wong traced the June selling to two waves: the signing of the Islamabad Memorandum of Understanding between the U.S. and Iran, which sent oil prices lower and the dollar higher, and the market's hawkish reading of new Fed Chair Kevin Warsh's remarks after the June FOMC meeting. He noted that commodity trading advisors, quant and algo-type funds predominantly drove June's waterfall declines.
Dollar strength and shifting rate bets
The technical damage was severe. In June, gold fell below its 200-day moving average for the first time since October 2023, and the drawdown reached -26%, the largest in a decade. Meanwhile, the U.S. Dollar Index rose 2.91% year-to-date as two-year Treasury yields climbed 70 basis points.
The rate outlook flipped sharply: fed funds futures that priced 2.3 rate cuts for the rest of 2026 at the start of the year now point to 1.5 rate hikes, a shift Wong tied to changing inflation expectations. Core PCE inflation is running around 3.3–3.4%, with headline CPI above 4%.
Gold as a neutral reserve
Wong wrote that the long-term secular trend of gold returning as a strategic reserve asset remains intact. Before Russia's full-scale invasion of Ukraine, the IMF calculated that gold averaged 12% of total world reserves since 2000. After the freezing of Russia's FX reserves, that share soared to a recent high of about 34%, before closing the quarter at 27%.
Wong wrote that gold increasingly serves as the neutral reserve asset linking competing currency blocs, with reserve managers focused on diversifying rather than replacing the dollar as a reserve currency. Because it carries no political allegiance and no counterparty risk, he said central banks increasingly view gold as a strategic reserve asset, one whose role may prove more important for gold than the precise path of interest rates over the next few quarters.
Source: Kitco News
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