- Gold prices have struggled to regain momentum as higher US bond yields, shifting central bank expectations, and renewed USD strength reintroduce concerns over opportunity cost into the market’s pricing framework.
- ETF inflows and broader investor positioning have softened as tighter financial conditions weigh on sentiment, although anecdotal evidence suggests central bank buying and other more structural sources of demand remain relatively resilient.
- While we remain strategically constructive on gold over the medium term, we have lowered our full-year ETF demand assumptions and reduced our forecasts by USD 200-400/oz to USD 5,500/oz for yearend and 1H27 amid risks of persistent yield and USD headwinds.
Gold has faced mounting headwinds since the onset of the Middle East conflict, but the market response is increasingly reflecting a macroeconomic repricing rather than pure geopolitical anxiety. Elevated oil prices are now feeding into inflation concerns, prompting central banks— particularly those with single mandates such as the European Central Bank —to maintain a more hawkish policy stance. Even for the Federal Reserve, with its dual mandate (both price stability and maximum employment), persistently high producer price pressures linked to energy costs complicate the path toward lower interest rates, especially while economic growth and labor market conditions remain comparatively resilient. Against this backdrop, the inverse relationship between US real yields and gold has reasserted itself over recent months.
The correlation between 2- year US Treasury yields and gold now stands near -0.6, a notable reversal from the slightly positive relationship observed earlier in 2026. In our view, markets are rediscovering the concept of opportunity cost, with gold’s non-yielding characteristics once again becoming a more important consideration as real rates remain elevated. Earlier in the year, gold increasingly traded as a liquidity and fiscal hedge, but investors are now rotating back toward many money market instruments.
The rise in yields has also coincided with renewed USD strength, with further tightening financial conditions weighing on bullion prices. This shift is becoming increasingly evident across investment flows. ETF and futures demand has softened, while the recent stabilization in flows is not yet sufficient to restore the strong upward momentum seen earlier in the year. However, it’s important to note that first-quarter investment demand remained robust at 536 metric tons and central bank purchases surprised positively at 244 metric tons, highlighting that underlying structural demand has not disappeared. That said, we think the secondquarter backdrop has become materially more challenging as the Middle East conflict continues, global yields move higher, and tighter financial conditions weigh on investor positioning. India’s decision to raise import duties on gold to 15% from 6% is also likely to act as a further headwind for near-term physical demand. The technical backdrop has also weakened. Options markets and broader positioning indicators point toward a more challenging near-term trading environment for gold investors.
While we do not believe the structural gold bull market is over, markets may require greater patience in the face of these challenges. But we think supportive drivers can reassert themselves over the medium term. Elevated global debt burdens, persistent fiscal deficits in the US, and continued reserve diversification trends should again elevate the strategic case for hard assets, especially as oil prices likely moderate toward the end of the year and softer US GDP growth ultimately likely allows the Fed to deliver a “growth insurance” rate cut in December. Looking into 2027, a more neutral monetary policy backdrop could weaken support for the USD and improve investor appetite for gold once again.
Meanwhile, central bank demand should remain robust in the 200-250 metric ton range in the second quarter, while jewelry demand is expected to stabilize around 300 metric tons in 2Q26. In our view, the current correction represents less the end of the structural gold story and more a cyclical repricing phase driven by higher real yields, stronger energy-linked inflation expectations, and renewed macroeconomic discipline across financial markets
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