At the start of this year, gold was all the rage as prices soared.
In the early weeks of the U.S./Iran conflict, gold prices went as high as US$5600. Now it’s down to around US$4,000, a 27 per cent fall.
Gold is regarded as a safe haven; today, not so much.
Investors in gold are looking for a quick rebound but will spot prices continue to drop? Will President Trump’s decision to again commence air strikes on Iran see gold prices climb back beyond the US$6,000 range?
Gold is traditionally seen as a hedge against inflation, and inflation is trending upwards. It is unlikely that central banks will reduce policy rates any time soon, particularly with U.S. inflation now at 4.2 per cent.
Over the last few years, central banks have invested in gold, with them buying over 1,000 tons each year since 2020.
Bullion tends to do well in a low-interest-rate environment.
Goldman Sachs has at its 2026 year-end gold price forecast, with gold going from US$5,400 to US$4,900.
“Our gold price views remain structurally constructive but tactically cautious with near-term downside risk and medium-term upside risk.”
Gold prices are not behaving as they are expected to given the war in Iran, economic uncertainty, rising inflation, a strong dollar and a hawkish Federal Reserve.
What must be borne in mind is that gold is a non-yielding asset which doesn’t earn income.
Right now, it is not seen as a safe haven.
“You have high inflation, high interest rate expectations and a strong dollar and that’s overriding all other bullish factors that are typically associated with a gold rally, “ said Edward Mair, an analyst at Marex
Let’s face it, gold loses its appeal in a high-interest-rate environment.
“ Gold bulls need at least one of three things to improve: lower real yields, a softer USD or a clearer unwind in hawkish Fed expectations. Without that, rallies are likely to fade and gold may spend more time consolidating below previous highs,” said metals strategist Christopher Wong.
When the dollar appreciates, buying gold becomes more expensive, affecting demand.
“At the end of the day, understanding why gold is falling requires standing back and recognising that gold does not sit neatly in any one asset category. It actually straddles several as gold simultaneously functions as a commodity, a reserve asset and a currency surrogate,” said Kristin Kerr, Head of macro strategy at LLP Financial.
He importantly added: Selling or swapping gold holdings provides immediate access to the currency that still sits atop the global funding hierarchy; the U.S. dollar. This helps explain gold’s unusual price action. Rather than seeing pure safe-haven flows, we are likely getting official and semi-official supply as some countries have been forced to monetise gold reserves to bridge revenue gaps created by disrupted exports.”
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