The Correction in Context
Gold recently traded around $4,000 an ounce and silver around $60, marking a fairly dramatic correction after both metals hit all-time highs in January. At the time of discussion, both appeared to be bouncing back somewhat, with silver up close to 4% on the day. The central question is whether this is a buy-the-dip opportunity or a moment to exercise caution.
The short answer is that this is a genuinely good entry point — a buy-the-dip opportunity. To understand why, it helps to review the price action precisely. At the end of January, gold hit an all-time high. Depending on which ticker you use, the closing figure was somewhere around $5,355 (intraday numbers vary, but call it $5,400 for a round figure). From that peak, gold fell to around $4,000, at one point dipping below into the $3,900–$3,950 range, before settling back around $4,000.
Everyone can see the price action; the real question is how to interpret it. Was the peak a bubble or a hyper-spike that will keep sliding downward — a signal to "get out while the getting is good"? Or is this simply how commodities behave: a normal, not-unexpected drawdown that sets up the next leg higher? The answer is the latter. This is a drawdown, and the intermediate target of $10,000 an ounce by late this year or early next year remains fully intact.
The Fundamentals Have Not Changed
That target is easy to assert, so it deserves scrutiny. Looking behind the curtain, the fundamentals have not changed at all. These fundamentals include:
- Geopolitical uncertainty in the Persian Gulf and in the war in Ukraine.
- Central banks remaining net buyers, with China buying "hand over fist."
- Flat mining output — not necessarily "peak gold," but flattish supply.
- Persistent inflation, which everyone can plainly observe.
When you have flattish supply meeting rising demand, that is a recipe for higher prices. None of these fundamental supports have weakened. So if the fundamentals point upward, what actually caused the price to fall?
The Real Trigger: A Dollar Shortage at the Strait of Hormuz
The catalyst was geopolitical, and it originated with the war in Iran, which broke out at the end of February (though it was foreseeable in advance). The Strait of Hormuz became the site of a double blockade. Iran blockaded the strait itself, letting through only friends of Iran or China who paid a toll. Simultaneously, the US Navy sat out in the Arabian Sea. If you met Iran's criteria and got through, the US Navy was waiting outside to board your vessel, blow you up, and turn you around.
This raised a stark question: how many people in the world were friends of both Iran and the United States? The answer was nobody. If you were pro-Iranian, the Navy stopped you; if you were anti-Iranian, the Iranians stopped you. So the strait was effectively shut. The statistics are well known — roughly 20% of the world's oil, 20% of the world's liquid natural gas, and an even larger percentage of the world's sulfur passes through.
Many people wonder why sulfur matters so much. It is a precursor chemical in nearly every important chemical process imaginable. The strait is also a major source of helium — not merely for party balloons, but because helium is essential to manufacturing semiconductors. Add aluminum and nitrates (used to make fertilizer to feed the world), and the implications become mind-boggling.
This disruption has now run for a couple of months. Some vessels are getting through, but not many — even on a good day, traffic is less than half the prior level. The notion that "the coast is clear" is simply untrue.
How an Oil Shortage Drives Down the Price of Gold
Here is the crucial and counterintuitive chain of causation. The world needs oil. There is oil around, and the United States will not run out — the US has taken over Venezuelan oil, is good friends with neighboring Guyana (which may hold even larger reserves still being explored), kicked the Chinese out of the Panama Canal, and under Trump is opening federal lands, the Gulf of Mexico, and Alaska to new oil and gas leasing. Neither the US nor Russia will run out of oil.
But America is not a large enough exporter to supply what is missing from the Persian Gulf, and it is not immune from world prices. The US might send some oil to Japan as an ally, but that does little for Malaysia, India, Africa, Europe, and elsewhere. Russia could supply all the natural gas Europe needs, yet Europeans seem intent on economic suicide, cutting off Russian supply for no good reason.
The key insight: all these commodities are priced in dollars. If you need commodities that are in short supply and rising in price, you need dollars — and as prices climb, you need even more dollars. How do you get dollars quickly? One efficient way is to sell gold, because it is liquid, and get dollars.
This created the downward pressure on gold. Although central banks in aggregate remained net buyers, some countries — including Turkey, Russia to some extent, China, and others — sold gold specifically to obtain dollars to buy oil. The downward pressure on gold therefore had nothing to do with inflation, monetary allocations, or long-term trends. It had everything to do with the world being short of dollars and needing them urgently.
How the Selling Fed on Itself
Once the dollar-shortage trigger started the price sliding, the decline fed on itself through market mechanics. Leveraged traders began hitting stop losses, forcing more selling. Commodity trading advisors, who simply love trends and do not care whether the instrument is soybeans or gold, saw the price falling and sold more. That hit still more stop losses, and the cycle continued downward. The trigger was the dollar shortage — sell gold, get dollars, buy oil — but the momentum was then carried by stop losses and momentum traders.
Importantly, that process is now beginning to run its course. The war in Iran may continue, and probably will, but some oil is getting out and other suppliers have increased output. Oil prices have dropped from as much as $110 a barrel down to around $67–$70. As a result, the urgency to obtain dollars has diminished. Some oil is flowing — not enough, but enough to relieve much of the pressure.
The Jim Rogers Rule: No Bull Market Without a 50% Drawdown
A lesson learned from Jim Rogers — perhaps the most famous commodity trader of all time and a partner with George Soros in launching the Quantum Fund — reframes this entire correction. The conversation took place roughly eight or nine years ago (around 2014) in the Dominican Republic, over a drink, while gold was falling significantly.
For context: gold peaked in August 2011 at around $1,900 an ounce, then fell all the way down to about $1,050 by December 2015. When asked what he was thinking at the time, Rogers said he was holding his gold and not selling any. His words were unforgettable: "In commodities trading, nothing goes to the moon without a 50% drawdown along the way. And if you're not ready for that, you're in the wrong market. Just get used to it. That's how commodities trade."
To test this, you have to pick a base. Using the 1999 low of $250 an ounce — the post-1980 bottom — as the base and $1,900 as the peak, the difference divided by two and subtracted from $1,900 yields $1,070. Gold actually bottomed at $1,050. Rogers was right on the money.
Fractal Mathematics and Scale Invariance
There is a deeper mathematical principle at work here, drawn from fractal mathematics: scale invariance. This means that if you take a one-week chart of the stock market and place it beside a 10-year chart with the dates removed, they look identical. The same patterns repeat at different scales — it is the same pattern, just compressed or expanded in time.
Applying both the Jim Rogers rule and scale invariance to today's market requires a new base. Using roughly $1,800 an ounce as the base and $5,355 as the peak, taking 50% of the difference and subtracting it from $5,355 produces a figure of about $3,600. This is not a prediction that gold will go to $3,600 — but it would not be shocking if it did. The importance is that it is the same pattern Rogers described and the same pattern seen from 2011 to 2015, merely more compressed. Scale invariance means a shorter time frame contains the same structure.
So on a fundamental basis — central bank buying, flat mining output, inflation concerns, and geopolitical uncertainty — gold should go up. And even on a more technical basis, using fractal math and the Jim Rogers rule, a 50% drawdown from $5,355 should not be surprising. Rather than signaling a broken trend, deep drawdowns are a structural feature of powerful bull markets. Wall Street frequently mistakes this volatility for failure, because frightened selling creates profitable buying opportunities for institutions. "We're there," and the market is ready for the next stage of liftoff. This is a very good entry point.
Gold Surpasses Treasuries as a Reserve Asset — But Understand Why
A major recent catalyst is that gold officially surpassed US Treasuries (more precisely, US dollar–denominated assets) as the most widely held reserve asset — originally reported at the end of 2025 and brought back into the spotlight by a recent ECB report. This raises the question of what it means for gold's role in the monetary system, and whether central banks stacking gold know something is coming, such as a monetary reset, or are simply removing wealth from counterparty risk.
The fact is real, but the reason is important. It was not the case that central banks dumped treasuries and bought gold and that is why gold rose. Central banks have been net buyers since 2010 — that must be kept clear. But the mechanism was different. They held a certain amount of gold and a certain amount of treasuries. Treasuries can be volatile but do not move much in price. Gold, however, more than doubled — some measures tripled — in a fairly short period. Even holding the same quantity of gold, tripling the price makes it a much bigger percentage of total reserves in dollar terms.
So gold surpassed treasuries as a percentage of total reserves primarily because its price tripled, not because central banks bought enormous amounts of gold (though they did buy some). It is like any portfolio: when you have a big winner, its share grows, and you might reallocate a little. This still reflects growing confidence in monetary metal over financial promises, and long-term investors should watch institutional behavior more closely than media narratives.
That milestone begs the deeper question: why are they buying this gold at all? Do central banks see something coming? The answer is that it is already here.
The Russian Reserve Freeze: The Lesson Central Banks Learned
The answer traces back to 2022 and the Russian special military operation in Ukraine. By 2026, that war is more than four years old and may not be over for perhaps another year, but it has been a brutal struggle in which Russia is winning — clearly in the process of winning. Ukrainian drones reach Moscow and cause some damage, but not that much.
Before the war, in January 2022, Russia's reserve position was approximately $600 billion. Of that, $150 billion — 25% — was in physical gold bullion held in Moscow. This is not tokens or futures; the physical gold was inside Russia. This positioning was the work of Elvira Nabiullina, head of the Central Bank of Russia, described as the only central banker in the world who truly understands her job and is genuinely good at it. Russia also held about $300 billion in US Treasury securities, with the remainder in euros and other assets.
But what do you actually do with $300 billion in treasuries? The last printed treasury bond was issued in 1979. Despite all the talk about digital crypto, the treasury market has been fully digitized, with encrypted message traffic, since 1979 — making it arguably the original cryptocurrency.
Who Controls the Ledger?
A digital ledger raises a fundamental question: who controls it? You need a custodian. The ultimate control rests with the US Treasury, the Federal Reserve, and Fedwire — the Fed acts as fiscal agent for the Treasury. But in between sit custodians such as Euroclear, Cedel (Clearstream), and DTC.
Here was Russia's critical error. The Russians held about $200 billion of their $300 billion in custody at Euroclear in Belgium — because they trusted the Belgians and trusted the Americans. That was a big mistake. The US and Europe together froze those assets. They are still there; in fact, having matured, they now sit frozen.
The enduring lesson is that ownership means very little if someone else ultimately controls access to your assets. Digital financial infrastructure always depends on custodians, creating risks that many governments previously underestimated. Once countries question whether their reserves remain accessible, diversification stops being ordinary portfolio management and becomes a strategic necessity — a mindset that could influence global capital flows for years. Gold held directly eliminates that entire layer of dependency, which explains why official reserve strategies have quietly evolved even as public statements remain reassuring. Every investor should ask who truly controls each asset they own.
The Broader Investment Lesson
The recurring theme throughout is the danger of confusing forced selling with failing fundamentals, and volatility with collapse. Markets corrected sharply, yet institutional demand never flashed the panic signal retail investors were told to expect. Nations scrambling for dollar funding will temporarily sell even their strongest strategic assets, disguising an accelerating bull market beneath urgent liquidity needs. Those who mistake this for a failed bull market often surrender their best long-term positions precisely when value improves. Patient capital benefits from the confusion that emotional traders create. Price patterns repeat more reliably than investors' emotions are willing to admit — and decisions grounded in probability and structural trends, rather than fear and headlines, are what separate disciplined investors from impatient ones.
