The World Gold Council's Head of Americas and Global Research Juan Carlos Artigas, Head of Americas Research Taylor Burnette, and Head of Asia-Pacific (ex-India) Research and Deputy Director of China Industry Expansion Ray Jia jointly published an analysis on Thursday exploring whether a structural shift has occurred in gold's performance.

The rise in gold price volatility and its key drivers in 2026 saw volatility exceed its usual range, reaching levels within the top 20% of its historical performance since 1971. Factors contributing to this heightened volatility, as detailed in the Council's January, February, and March "Gold Market Commentary" reports, include:

A cooling of expectations for interest rate cuts by the Federal Reserve, coupled with rising bond yields driven by multiple factors—such as the late-January announcement of Kevin Warsh's nomination for Fed Chair and heightened inflation concerns stemming from Middle East conflicts in late February; A strengthening US dollar, reversing its previous three-month downward trend; Profit-taking by investors in gold futures, options, and long ETF positions following a rapid price surge—after gold climbed swiftly from $5,000 to $5,500 per ounce in just three days, crowded long positions and overbought conditions led to a sell-off; Stop-loss orders being triggered when prices fell below key technical levels, further amplifying price swings.

Despite several price rebounds, persistent geopolitical risks and increased liquidity needs during periods of market stress have exerted additional influence on gold's volatility, particularly given the impact of Middle East conflicts on major trading and demand hubs like Dubai.

It is noteworthy that gold was not the only asset class to experience increased volatility in 2026. In March, volatility in both equities and bonds also rose significantly, a pattern observed in previous historical episodes. For instance, during the Global Financial Crisis (GFC), investors sold gold—a highly liquid asset with strong prior performance—to meet margin calls or liquidity demands. A similar dynamic occurred when the COVID-19 pandemic disrupted global financial markets. In most such cases, gold performed well overall, serving as a source of emergency funding for investors. Once liquidity crises subsided, gold also delivered robust returns. This underscores a key strategic advantage of gold in investment portfolios: its role as a liquidity source during market stress.

Will Elevated Gold Volatility Subside? Analysis indicates that gold volatility exhibits mean-reverting characteristics. Historical data show that gold's annualized volatility typically ranges between 10% and 18%. The "half-life" of a volatility shock—the time taken for the impact of a spike to halve—is approximately 1.6 months, similar to that of equities. This suggests that although gold's volatility can spike to levels not seen for years, it has historically tended to revert toward its long-term average.

Has the Sell-Off Affected Gold Market Liquidity? During recent market sell-offs, gold trading activity surged significantly, highlighting its deep liquidity under stress. In the final week of January, during a price pullback, average daily trading volume in the global gold market reached a record $965 billion (equivalent to 5,805 tonnes per day). Over-the-counter (OTC) trading, primarily driven by LBMA members, saw average daily turnover rise 41% from the previous week to $395 billion per day. Trading volume in gold derivatives on major exchanges jumped 45% to $520 billion per day, led by strong increases on COMEX and the Shanghai Futures Exchange (SHFE). Gold ETF trading volume soared 137% week-over-week to $49 billion per day.

A similar pattern emerged in March. As gold prices corrected, average daily trading volume rose to $525 billion, an 11% increase from the previous month and 46% higher than the 2025 average of $361 billion per day, with particularly strong activity in LBMA OTC and COMEX trading. This performance echoes the period in March 2020 when the COVID-19 pandemic triggered a global market sell-off, during which gold trading volumes also surged, reinforcing gold's role in providing deep liquidity during broad financial stress.

Meanwhile, intraday bid-ask spreads offer a more direct gauge of market depth. Although gold experienced several sporadic shocks in recent months, a notable feature was the very brief duration of widened spreads. The four largest spread spikes occurred between Sunday evening and Monday morning, and late Thursday into Friday, coinciding with price gaps during the less liquid Asian market opening hours, after which spreads quickly normalized.

Another measure of gold market liquidity can be observed by examining bid-ask spreads relative to realized volatility. Although spreads for spot gold widened during stress episodes over the past two years, this was primarily driven by higher volatility rather than a persistent deterioration in liquidity. When adjusted for volatility, spreads generally remained within their historical range and have retreated from prior highs. This indicates that spread widening has been more episodic than structural, and a return to normalization is expected as volatility subsides.

Does Gold Remain a Strategic Asset in Portfolios? Despite the recent volatility spike, gold continues to serve as a key strategic asset in investment portfolios. Inflation shocks typically adversely affect both equities and bonds, causing their correlation to turn positive. Recent oil price surges related to conflict with Iran may exacerbate inflation-driven market volatility. Meanwhile, gold has maintained a low to negative correlation with risk assets, offering investors a valuable diversifier.

Therefore, even with recent elevated volatility, gold's low correlation with equities means that including it in a diversified portfolio can help reduce overall risk. Analysis of a hypothetical global portfolio of stocks and bonds (a traditional 60/40 portfolio) confirms this. Furthermore, gold often experiences an initial pullback during the early stages of a risk event, acting as a source of liquidity; but when uncertainty persists, it tends to recover and outperform other asset classes. Consequently, an allocation to gold contributes very little to portfolio risk while meaningfully reducing overall volatility.