Gold price falls back to value zone; is this bull market over? The real reversal depends on these 5 signals!

The most frightening thing about this gold decline is not that the price broke $4,000, but that many people have directly translated “price correction” into “gold logic collapse.”

Spot gold once fell to around $3,965, even touching $3,943 the previous trading day, and US August gold futures also fell to around $3,978. More painfully, gold has just experienced its biggest quarterly drop since 2013, with June being the fourth consecutive monthly decline. In other words, if your gold account has been making you lose appetite lately, you are not alone.

But precisely at such times, we must not let emotions become conclusions. Today, Bagel wants to clarify a more important question: is this gold decline eroding long-term value, or squeezing out the excessive sentiment bubble from early this year?

We will break down three things. First, why gold, despite having long-term support, has been falling so badly in the short term. Second, why the $3,900 to $4,100 area looks more like a value observation zone than a safe zone to blindly rush into. Third, what five signals ordinary investors should really watch, instead of being led by daily K-lines.

If you also want to understand the complex logic of interest rates, gold prices, US Treasuries, and the Fed like Bagel, remember to like, subscribe to Bagel Finance Talk. Bagel does not waste words, only provides dry goods. Every major gold fluctuation, we will break down the hardest logic into digestible breakfast.

This question is critical. Because if gold’s long-term logic is broken, the decline is a risk. But if gold is only returning from overheated valuation to a reasonable zone, the decline may instead be creating a new window of observation. The most feared thing in the investment market is not rises or falls, but confusing two completely different declines, eventually chasing at highs and being scared out at lows.

First, look at the first layer: why has gold been falling so badly?

The answer is not mysterious. The three mountains weighing on gold are the US dollar, US Treasury yields, and Fed rate hike expectations.

Gold itself does not generate interest. When US Treasury yields rise, the market naturally compares: holding gold yields no coupon, while holding Treasuries yields returns, so why should short-term funds not chase higher yields? This is the opportunity cost of gold. Coupled with a stronger dollar, gold priced in dollars becomes more expensive for non-dollar buyers, suppressing overseas buying. Thus, even though gold has safe-haven properties, as long as the market fears inflation stickiness and the Fed remains hawkish, gold will be hit badly in the short term.

This is also the core background why gold’s rebound has been uneven. US May PCE rose to 4.1% year-on-year, core PCE at 3.4%, inflation pressures are not back to a level comfortable for the Fed. The market was not mainly betting on an immediate July rate hike, but more worried about further tightening after September or rates staying high longer. For gold, this is like a bitter black coffee suddenly appearing on the breakfast table – maybe good for staying awake long-term, but hard to swallow short-term.

However, being suppressed by interest rates short-term does not mean the long-term logic disappears. Gold’s true underlying value is not built on a single Fed speech or non-farm payroll data, but on long-term factors like credit currency expansion, dilution of dollar purchasing power, persistent global debt pressure, and long-term capital needing scarce assets to hedge risk. The dollar can be expanded with fiscal, debt, and financial system needs, but gold cannot be randomly created by central banks.

Gold is not like a company stock that can go to zero due to profit collapse, nor like some credit products that suddenly lose trust due to default risk. Its core role is a scarce anchor in the credit currency system.

So, the easiest place to misread gold right now is here: short-term price is suppressed by the dollar and interest rates, yet long-term logic is still supported by monetary expansion and scarcity. You cannot say wheat doesn’t exist just because a bagel is a bit hard today. Similarly, you cannot say gold’s long-term monetary properties completely disappear just because it has fallen hard short-term.

But Bagel must also put the risk boundary upfront: long-term logic does not equal short-term immunity to decline; allocation value does not equal immediate reversal. Gold can have long-term value while still consolidating short-term; it can be more worthy of observation than earlier highs, yet not have completed its bottoming. The most important thing in professional judgment is not to shout a direction, but to consider price, value, and confirmation signals together.

Next, we will talk about the three most common misjudgments by ordinary investors.

First misjudgment: Confusing short-term decline with long-term logic collapse. Gold falling does not mean global debt pressure suddenly resolves, nor that the credit currency system becomes extremely stable, nor that central banks and long-term capital no longer need gold. It may simply be that after prices rose too fast and sentiment was too hot, the market returns to a position requiring more rational assessment.

Second misjudgment: Thinking that falling back to the value zone means an immediate reversal. The market is not that gentle. Bottoms are usually not a precise point but a period of repeated torment. Gold could fall to around $3,950 and be bought, or rebound to $4,050 and be pushed back, or even test near $3,900 in extreme sentiment. The so-called value zone means worth observing, not blindly safe.

Third misjudgment: Only watching price, not variables. Gold is not an asset that can be judged solely by K-lines; it is simultaneously affected by the dollar, US Treasury yields, inflation expectations, Fed policy, ETF flows, central bank gold purchases, and Asian physical demand. Merely looking at whether it went up or down today easily leads to being whipsawed by market sentiment. What is truly useful is not guessing tomorrow’s rise or fall, but seeing whether the variables suppressing gold have begun to loosen.

So where is gold now? Bagel prefers to call the $3,900 to $4,100 zone a “value observation zone” rather than a “safe zone for gold.” This zone is not an iron bottom, nor a safety pad guaranteeing no further decline, but a key area to observe capital absorption, panic release, and sentiment repair.

Why an observation zone? Because from the highs earlier this year to now, gold has already released a considerable portion of valuation and sentiment risks. Earlier this year, gold surged to around $5,586, with markets very excited, all narratives of safe-haven, inflation, and currency revaluation stacking together. Many people, seeing prices rising all the way, assumed gold had only one direction. But the problem is, when prices rise too fast and sentiment is too full, even good assets become expensive. Later, gold fell from over $5,500 to around $4,000, essentially not just due to bearish factors, but also the market scraping off the overheated syrup layer by layer.

Here we can use Mark Mead Baillie’s model as a reference, but not as the only answer. Baillie has tracked gold for a long time, using the BEGOS framework focusing on bonds, euro, gold, crude oil, and S&P 500 linkages.

According to his latest article, US M2 money supply rose from $22.879 trillion to $23.063 trillion in four weeks, an increase of about 0.8%, causing his model’s fair value for gold to be revised up from $3,952 to $3,979.

The meaning of this data is not that $3,979 is the absolute bottom, nor that the Fed directly printed $184 billion to buy gold. M2 is broad money supply, including M1, small time deposits, and retail money market funds; it reflects broad money stock changes, not equivalent to direct QE.

A more reasonable understanding is: in Baillie’s framework, gold has moved from a zone significantly above fair value earlier this year back to a zone closer to the model’s fair value. It shows gold is no longer as absurdly expensive as early this year, but does not mean short-term risk has disappeared.

This is the sense of proportion Bagel wants to emphasize most today: Gold is more worth observing than at the start of the year, but has not yet confirmed a reversal; the long-term allocation logic remains, but it will not be immune from short-term declines; prices are near value zone, but the market may still wash out repeatedly. If this zone is broken on heavy volume with weak rebounds, it means short-term panic hasn't fully released, and we cannot forcefully interpret it as having bottomed.

If you have already realized you used to confuse “gold price decline” with “gold logic collapse,” then this episode is worth a like and bookmark. Welcome to subscribe to Bagel Finance Talk. For every future major fluctuation in gold, US Treasuries, the dollar, and the Fed, we will continue to unpack complex logic into judgment frameworks that ordinary people can understand and use.

We can use the 2015 case to understand this state of “extremely poor sentiment but value beginning to appear.” In December 2015, gold fell to around $1,045, with the market very pessimistic. But according to Baillie’s back-calculation, gold’s fair value was about $2,442 then. Later, gold embarked on a long-term bull run from that low.

This example is not to say that today will definitely replicate 2015; history never works like a photocopier. It truly reminds us that when gold is extremely pessimistic, it often enters a phase where long-term capital reassesses.

Therefore, the most important thing now is not to call “bottom” or “crash,” but to watch five confirmation signals.

First signal: Watch whether the $3,900-$4,100 zone can repeatedly attract absorption. If every time gold falls to this zone, medium-to-long-term buying absorbs, it indicates the market begins to recognize this value zone. But if the price breaks this zone on heavy volume with weak rebounds, it means short-term panic hasn't fully released, and you cannot interpret it as a bottom.

Second signal: Watch whether the US dollar index and Treasury yields can cool down. As long as the dollar remains strong and Treasury yields continue rising, gold will struggle short-term. A strong dollar suppresses the purchasing power of non-dollar buyers, and high yields increase the opportunity cost of holding gold. For gold to truly emerge from weakness, it usually needs to see marginal easing of dollar and real interest rate pressures.

Third signal: Watch whether the Fed’s tone changes. What the market truly fears now is not a single rate hike, but the possibility that high rates persist longer. If inflation stays sticky, employment remains strong, and the Fed remains hawkish, gold’s rebound potential will be suppressed. Conversely, if subsequent data leads the Fed to shift from hawkish to more balanced, gold will find it easier to gain valuation repair space.

Fourth signal: Watch gold ETF flows. If ETFs continue to see outflows, paper money is still retreating, and short-term rebounds may lack stable buying. Only when ETF outflows slow or even turn into inflows does it indicate that institutional money may be reassessing gold’s allocation value.

Fifth signal: Watch central bank gold purchases and Asian physical demand. True bottoms for gold are often not shouted by short-term money, but gradually absorbed by long-term capital and physical buying. If central bank purchases remain stable and Asian physical demand continues to absorb, gold's downside support will be more resilient. If physical demand also starts to ebb, it means the bottom requires more time.

Up to this point, we also need to correct a classic misconception: many people simplify gold into “rate hike = down, rate cut = up.” This logic is half right but half crude. Rate hikes do suppress gold because gold yields no interest; the higher Treasury yields, the higher the opportunity cost. But history also saw gold rise during rate hike cycles, such as 2004-2006 when the US was in a continuous rate hike cycle but gold did not go into a long-term bear market, actually rising. The core reason is not that rate hikes suddenly became positive, but because gold was not expensive relative to long-term value, and the forces of monetary expansion and value repair offset part of the rate pressure.

So judging gold cannot just ask whether the Fed will raise rates, but rather ask whether the current gold price is far above value or has returned to a reasonable zone. When gold was above $5,500 early this year, the biggest risk was not the lack of a long-term story, but price being too expensive, sentiment too full, and too much chasing money. Now gold is back near $4,000, the biggest change is not risk disappearing completely, but the risk-reward ratio being completely different from early this year.

For ordinary investors, the most rational approach now is neither to panic sell nor to all-in bottom-fish, but to distinguish one’s own trading horizon.

If you are a short-term trader, this phase is indeed difficult because the trend is not yet fully reversed, and rebounds may be repeatedly suppressed by the dollar and Treasury yields. The most important thing for short-term trading is discipline: do not see a green candle and think the bull market restarts, nor see a red candle and think gold has crashed.

If you are a medium-to-long-term allocator, you can start to closely observe now, but do it in batches, by zones, and by positions. Do not put all your capital at one point, and do not fantasize that you can perfectly buy the exact bottom.

Bagel’s conclusion today is simple but important: gold has moved from a clearly overvalued zone early this year back to an observation zone closer to fair value, but a true reversal still requires confirmation signals. It is not about to take off immediately, nor is the bull market over, but it has entered a position that most tests patience and logic.

If gold can repeatedly hold around $3,900-$4,100, the dollar and Treasury yields begin to cool, ETF outflows slow, the Fed’s tone stops being hawkish, and central bank purchases and Asian physical demand continue to absorb, then gold will have a better chance to move from bottom-building into a new round of value repair. Conversely, if the dollar remains strong, Treasury yields continue rising, and the Fed continues to signal rate hikes, gold may continue to oscillate or even test lower.

Therefore, this episode is not investment advice, nor a call to blindly bottom-fish. Gold is indeed more worth observing now than at the highs earlier this year, but the market has not yet given fully confirmed reversal signals. What you should do is not to be led by panic to sell, nor by “gold pit” to buy, but to consider price, value, and signals together.

If this logic helps you, please help Bagel like, bookmark, and subscribe to Bagel Finance Talk. Because every future major gold fluctuation will not be just a K-line issue; it will be connected to the dollar, Treasuries, inflation, and the Fed. Bagel will continue to break down these complex macro issues clearly, no nonsense, only dry goods, with the hardest logic to explain the most understandable US stocks, gold, and Treasury knowledge.

Finally, a question for everyone: Do you think this gold adjustment is near the end, or will it continue to test lower? Feel free to comment “bottom seen” or “continue down.” Leave your views, and we will verify this logic with market performance later.