Navigating the recent gold market correction

We have written recently about our commodity and gold exposures giving investors improved diversification and inflation resilience (Can commodities be an antidote to geopolitical anxiety?). Precious metals have had a very strong few months; now, there has been, a not totally unexpected, correction with the spot gold price dropping ­­more than 9% in a single session, marking one of its steepest declines in decades. Can you see it on the 5 year graph below? We like to keep corrections in context but that does not mean we ignore them; we are active investors.

Gold performance over the last 5 years

Source: Bloomberg, W1M. Data at 30.01.26

What happened?

The long-term structural reasons we see to be exposed to gold and other commodities have not changed but, because we have been talking about the sharpness of the recent rally, and perhaps some speculative flows in markets, in January, we took profits in some of our gold related holdings; this has proved to be timely. In addition, we use protection strategies in our portfolios and, last month, added a note which means we participate in gold price upside but only suffer around half of any downside. This has been a good example of active investment management making timely, risk-adjusted changes to portfolios.

• Gold prices have had a correction following a record-breaking rally that saw prices peak near $5,600 per ounce in late January. The correction, which included gold's worst one-day fall since the early 1980s, was primarily caused by a shift in U.S. monetary policy expectations and technical market factors. Kevin Warsh has been nominated as the next Chairman of the Federal Reserve; investors view Warsh as a credible candidate who will not be cutting interest rates for political reasons; this reduces US inflation risks in itself and could lead to a stronger U.S. Dollar with reduced demand, potentially, for assets like gold which offer no yield. But, the fiat currency debasement risk that has led many to be interested in real assets has certainly not gone away.
• Technical Factors: As prices began to slip from all-time highs, exchanges typically raise margin requirements on precious metal futures which can force leveraged traders to sell, creating a "snowball effect". Potentially easing geopolitical tensions may also have reduced the immediate need for "safe-haven" assets. We have seen some profit taking after a great run; in fact, W1M took some profits after a "parabolic" rise after gold surged past $5,000 for the first time. None of these factors change the long-term, structural case for exposure to real assets.

What did W1M do?

In January, we reduced our exposure to precious metals, including platinum and gold. We took profits in gold mining stocks (like Newmont) which have done incredibly well over the last 12 months and also sold around half of our physical gold exposure in our Real Assets Fund (and across the W1M multi asset funds) to buy a defensive capital protected note on physical gold. The note was structured to participate in a further 22.15% rise in the gold price from strike ($5,076) but provide a beta of ~0.5 to any downside move, in conjunction with being 90% capital protected on a 12 month view. The table below shows that our Real Assets Fund has, between 27.1.26 and 02.02.26, reduced its gold exposure from around 13% to 11%. This shows our constructive long-term view on gold as well as active investment management prudently taking profits and managing risk.

Source: W1M

What do W1M expect now?

We remain constructive, long-term, on many aspects of both the precious metals and commodity complex.

While the short-term market moves can be sharp, a technical correction can be healthy, driven by position unwinding rather than a total loss of faith in an investment thesis. Concerns globally remain regarding fiat currency debasement and central banks are still building up their gold reserves from relatively low levels historically. More broadly, we live in a world with growing commodity demand, whether that is to build AI datacentres, EVs or much needed infrastructure improvements.

January 2026 asset allocation positioning

Positively positioned:

• Global growth is solid;
• Inflation expectations benign;
• Interest rate cuts are expected in the US and UK over the next 18 months;
• Sentiment not overly optimistic;
• Valuations not unattractive in most parts of equity markets.
• Government bonds appear more attractive than credit given narrow spreads.

Risks:

• Tariffs and resulting inflation risk are currently not concerning the market;
• US consumers yet to feel the impact of higher prices; demand could soften.

Source: W1M

Risk warning: The above should be used as a guide only. It is based on our current view of markets and is subject to change. As at 07.01.26.