Update, 21 October 2026: This analysis was written in November 2025; its prices, figures and outlook are as of that date. On 3 November 2026 the gold Ask was $3,954 an ounce and silver $49.90, 27% and 58% below the records both set on 29 January 2026. For the record and the crash that followed, see gold price in 2026.
When gold experiences sharp intraday price swings of 3-5%, market commentators often interpret it as weakness in the precious metal itself. Some market observers read these moves differently: as gold acting as an early warning of stress in the financial system. On that view, gold’s volatility in late 2025 pointed less to a problem with gold than to strain in the system’s liquidity plumbing. This article sets out that argument.
The argument is that gold, as a highly liquid asset, can show strain before it appears in stock prices or credit spreads, and that the pattern in November 2025 resembled earlier episodes when gold’s behavior came before financial turbulence.
The Private Credit Market: Shadow Banking’s $2 Trillion Problem
The private credit market has emerged as one of the most significant vulnerabilities in post-2008 finance. This sector encompasses lending by non-bank entities like hedge funds, private equity firms, and specialty finance companies. Unlike traditional banks subject to rigorous oversight, private credit operates with far less transparency.
According to data from the Federal Reserve and Bank for International Settlements, the private credit market has grown to exceed $2 trillion as of 2025, up from approximately $800 billion in 2018. This explosive growth filled a void left by banks that retreated from riskier lending after post-crisis regulations tightened.
The boom occurred during ultra-loose monetary policy from 2009-2021. As detailed in our analysis of Federal Reserve policy impacts on gold, borrowers could service even marginal loans because refinancing remained easy and cheap capital was always available.
The Liquidity Trap Revealed
Starting in 2022, the Fed began the most aggressive rate hiking cycle in four decades, raising rates from near-zero to above 5.25%. This created severe stress in private credit markets:
Higher Borrowing Costs: Companies with floating-rate loans saw interest costs double or triple. According to Financial Times reporting, defaults began climbing steadily through 2024-2025.
Maturity Wall: The sector faces a significant “maturity wall” in 2025-2027, with hundreds of billions in loans coming due. With rates high and credit tight, refinancing has become difficult or impossible for marginal borrowers.
Mark-to-Market Avoidance: Private credit valuations occur quarterly based on internal models, allowing lenders to avoid marking loans to realistic values. But when funds face redemptions, forced sales reveal that loans worth 100 cents on paper might fetch 70-80 cents in actual transactions.
Liquidity Mismatch: Many funds offer quarterly redemptions while holding illiquid loans. When investors request redemptions simultaneously, funds must either suspend redemptions or sell assets at fire-sale prices.
The Cockroach Problem: Hidden Defaults
Bloomberg reporting indicates troubled loans have been increasingly “extended and pretended” throughout 2024-2025. Rather than recognizing defaults, lenders extend maturities or provide additional capital, preserving the fiction that loans remain current while increasing exposure to deteriorating credits.
The problem compounds because interconnections remain opaque. A hedge fund experiencing stress might be forced to sell liquid assets like gold to raise cash, creating contagion from illiquid private credit to liquid public markets. As examined in our analysis of systemic banking risks, these mechanisms played crucial roles in previous financial crises.
Gold’s Dual Role: Liquid Asset and Crisis Hedge
Gold occupies a unique position: it’s simultaneously a highly liquid asset and a crisis hedge. This dual role explains gold’s sometimes counterintuitive behavior during financial stress.
Major financial institutions use gold as high-quality collateral in repo markets. According to LBMA market analysis, the London gold market facilitates hundreds of billions in secured lending using gold as collateral. When liquidity stress emerges, institutions can immediately sell gold, use it in repo transactions, or secure gold-backed loans.
This means gold often experiences selling pressure during the initial phase of financial crises as institutions liquidate their most liquid assets first to raise cash for margin calls or redemptions.
The “Dash for Cash” Pattern
March 2020 provided a perfect example. Between March 9-19, gold declined approximately 12% despite the crisis environment. This occurred as leveraged investors faced massive margin calls, forcing liquidation of liquid assets. The iShares Gold Trust and SPDR Gold Shares both experienced significant outflows as institutional investors raised cash.
Crucially, gold’s decline proved temporary. By August 2020, gold reached new all-time highs above $2,060 per ounce as the Fed’s response, unlimited quantitative easing and zero rates, drove investors toward hard assets. The pattern: initial selling during acute liquidity stress, followed by sustained appreciation as monetary responses debase currencies.
Recent Gold Volatility: The Warning Signal
Gold experienced notable intraday volatility during October-November 2025, with sessions showing price swings of 3-5%. According to LBMA gold price data, gold’s average daily volatility increased significantly in Q4 2025 despite maintaining elevated price levels near record highs.
The World Gold Council’s Q3 2025 demand data showed continued strong investment demand of 537 tonnes and central bank purchases of 220 tonnes, totaling 757 tonnes in Q3 alone, demonstrating price-insensitive accumulation, as detailed in our Q3 demand analysis. On this argument, sharp selloffs despite such strong demand point to forced selling by holders who needed cash elsewhere, rather than to weaker interest in gold.
CME gold options data showed elevated implied volatility throughout October-November 2025. This premium indicates market participants pricing in continued potential for sharp moves, consistent with ongoing liquidity stress in the broader financial system.
When Liquidity Vanishes: How the Fed Has Responded
In past episodes of severe liquidity stress, the Fed has intervened. Some analysts argue that financial stability takes priority over the inflation target when the two conflict.
Historical examples include:
- 2008: Fed slashed rates from 5.25% to 0.25%, implemented $3.5 trillion in QE
- 2018-2019: Fed intervened when repo rates spiked, ending quantitative tightening
- March 2020: Unlimited QE, corporate bond purchases, money market fund backstops
As discussed in our analysis of Fed policy impacts, these interventions share a principle: when faced with liquidity crisis, the Fed prioritizes system stability over all other considerations.
Gold bulls describe this as an asymmetry: if the Fed reliably prevents a deflationary slump, the likelier risk becomes inflation and currency debasement, conditions in which gold has tended to do well. The argument rests on the Fed behaving as it did in 2008 and 2020, which is not guaranteed.
Credit Markets Drive the Economy
According to Bank for International Settlements research, credit availability correlates far more strongly with GDP growth than inflation or policy rates. When credit markets seize up, economic activity collapses regardless of other indicators.
The concentration of risk in private credit creates systemic vulnerability because it sits outside the traditional banking system where the Fed can intervene directly. Yet if enough private credit funds experience simultaneous stress, contagion spreads to traditional banks, broker-dealers, and insurance companies.
Proponents of this view argue that such a crisis would again force the Fed to intervene, in ways that have historically supported gold prices.
Gold After Past Interventions
In the two most recent episodes, gold rose strongly after the Fed intervened:
- Post-2008: Bottomed at $720/oz in October 2008, rallied 165% to $1,921/oz by September 2011
- Post-COVID March 2020: Bottomed at $1,470/oz on March 16, rallied 40% to $2,067/oz by August
In both cases gold fell during the acute stress, then rose to new highs after the Fed acted. Two episodes are a small sample, and past performance does not predict future returns.
Central Bank Buying
Perhaps the most telling signal comes from central bank behavior. As detailed in our Q3 demand analysis, according to World Gold Council preliminary estimates, central banks purchased approximately 634 tonnes through Q3 2025, remaining on pace for elevated accumulation despite record price levels.
Central banks were buying gold at historically high prices despite the opportunity cost. In the World Gold Council’s annual surveys, reserve managers cite gold’s performance in times of crisis and its role as a long-term store of value. Many analysts, including in our analysis of structural bull markets in gold, regard central bank buying as one of the main drivers of the rally.
The Fire Alarm, Not the Fire
On this view, gold’s volatility works like a smoke alarm: the noise is not the problem itself, it points to one elsewhere in the system.
Investors who hold this view read gold weakness during stress as a sign that:
- Financial system stress is building in areas not yet visible in mainstream indicators
- Fed intervention may follow, which has historically supported gold
- Prices may recover once policy responds, as they did after 2008 and 2020
How Investors Use This Argument
Investors who follow this argument tend to draw a few conclusions, each with caveats:
Volatility as a signal: they treat sharp selloffs during strong demand as a sign of forced selling rather than a reason to sell, although a selloff can also be the start of a longer decline, as after 2011.
Time frame: where the sequence of liquidity crisis, Fed intervention and higher gold prices happened, it took quarters or years, not days.
Physical vs. financial exposure: fully paid physical metal in your own custody has no counterparty, unlike futures, unallocated accounts or some funds. The premium for physical metal, as discussed in our lease rate analysis, partly reflects this.
Regular purchases: some buy a fixed amount at regular intervals (dollar-cost averaging) instead of trying to time a bottom; it spreads the entry price but does not prevent losses if prices fall.
Conclusion: Gold as a Stress Indicator
On the argument set out here, gold’s volatility in November 2025, despite strong demand and continued central bank buying, was less a sign of weakness in gold than of stress elsewhere in the financial system.
The private credit market’s structural problems, approaching maturity wall, and persistent inflation looked to proponents of this view like earlier episodes that ended up supporting gold prices.
Whether gold’s volatility is read as a warning or as ordinary noise, it is one signal among many, alongside credit spreads, funding markets and central bank actions. Bullion Trading LLC sells gold and silver bars and coins online and at its New York store; this article is not investment advice. For more background, see our analysis of gold’s structural bull market characteristics.