It seems that the world is becoming an increasingly uncertain place with each passing week. From a global trade war this time last year, we’ve progressed to an actual war in the Middle East, one that could threaten the entire global economy. Unsurprisingly, everybody’s favourite hedge, gold, has outperformed many more speculative assets throughout this time. From a local low around $3,000 in late March of 2025, the yellow metal almost doubled to hit a new all-time high of $5,630 in late January of this year. This kind of rapid growth was virtually unprecedented for precious metals, but what happened next was even more shocking, considering the geopolitical developments. As Iran and Israel hit key bases and energy infrastructure in the Persian Gulf, rather than rise further as one might expect, gold tanked more than 20% before regaining some ground to settle at $4,428 today (26 March).
Apart from the well-known phenomenon of markets buying the rumour and selling the news, there are many other important factors beyond the risk premium that are influencing and will continue to shape precious metals’ prices in 2026. Between the interplay of inflationary forces and dollar market fluctuations, there’s also a tug of war between interest rate policy and central bank buying that will have much to say about gold’s future price action. In this piece, we’ll look at all these and more, as we attempt to plot a trajectory for gold into the second half of this year and beyond.
Inflating the dollar
As we’ve already touched upon, the deepening of the geopolitical quagmire in the Middle East has unexpectedly led to declines in gold. This is a signal that traditional safe-haven behaviour is being overpowered by wider macroeconomic forces. The current situation would typically lead to a more pronounced risk-off sentiment; but expectations of lower inflation, despite the short-term production cost increase due to the closure of the Strait of Hormuz and consequent high oil prices, are reducing the need for gold as a hedge. Over a much longer-term horizon, we’re seeing lower commodity prices, a slowing Consumer Price Index, and sustained tight monetary policy, all of which make fixed income and equities more attractive, especially as the knock-on effect of strengthening the dollar begins to compound the impact of the other previously mentioned factors. There is a well-established inverse relationship between gold and the USD, and a stronger dollar makes gold more expensive internationally, but can also make the yellow metal appear cheaper when quoted in USD. The greenback has gained over 2% against both the euro and sterling just this past month, which in addition to reducing gold’s dollar cost also makes bonds and deposits more attractive than gold, especially in a falling market. Overall, the geopolitical risk environment does remain supportive for precious metals, but inflation’s steady decline up until this latest flashpoint in the Iran-Israel conflict and consequent strengthening of the dollar represent longer-term trends likely to contribute to lower gold prices over time. Consumer prices rose 2.4% over the 12 months to February, which brings us closer to the Fed’s 2% target. Allowing for an oil-related spike in March, price pressure would be expected to resume its downward movement once the conflict is resolved.
Centralised power
The relationship between interest-rate expectations and gold prices is well-known. And as inflation continues towards target, a resumption of dovish monetary policy becomes increasingly likely. Trump’s pick for Fed chair, Kevin Warsh, will be acutely aware of the expectation upon him when it comes to delivering the stimulative rate cuts that the President has been imploring Powell to make for months if not years. The US 10-year bond now yields 4.4%, while the 10-year UK gilt is now offering over 5%, its highest yield since 2008. Even ECB bonds are yielding 3.05%, up from 2.65% a month ago. This naturally makes the opportunity cost of holding gold higher and therefore reduces demand for the non-yielding metal. Again, though, the expectation both in the US and in Europe is that interest rates will be cut at the earliest opportunity, to bring much-needed relief to mortgageholders and to stimulate business and, by extension, the stock market. At which point, gold will once again become attractive as currency yields fall. Meanwhile, an important trend persists: mass central bank purchasing of gold, particularly in the emerging world. World Gold Council figures show that central banks have bought over 800 tonnes per year for four consecutive years, which far outstrips the long-term average of 400–500 tonnes. China and Poland, both export-oriented industrial nations, have been the biggest buyers, accounting for almost a quarter of total purchases in 2025. This suggests that the two countries expect fiat volatility to persist, and both see gold as a stable store of value over the long term. However, the future gold price direction in 2026 will undoubtedly depend on whether rate cuts arrive before geopolitical or inflation risks fade.