Gold prices continue to face great pressure as oil prices rise sharply, reigniting concerns about inflation, forcing central banks to reconsider the timing of monetary policy easing, even considering the possibility of raising interest rates.
The environment once expected to support gold in 2026 with inflation cooling down and the prospect of early interest rate cuts quickly reversed. Central banks are now shifting to a cautious, "wait and observe" state, as energy-induced inflation makes policy prospects more complex. The possibility of interest rate hikes may not be set immediately, but the expectation of cuts has been pushed back, thereby increasing the opportunity cost of holding gold – a non-interest asset.
This change is enough to shake the precious metal market. Gold is no longer simply traded as a safe haven asset, but is increasingly sensitive to interest rate expectations while these expectations are developing in a disadvantageous direction.
The cause of this reversal is quite clear. According to the World Bank's April report, the global economy is facing the largest oil supply shock ever recorded after the Middle East conflict escalated. Brent oil prices increased from 72 USD to 118 USD/barrel in March, and energy prices are forecast to increase by 24% in 2026. Inflation due to such supply is particularly disadvantageous for gold, because it forces central banks to maintain tight monetary policy for longer, even when economic growth slows down.
However, despite these "reverse winds", the foundational factors of gold still maintain a very positive state.
The World Gold Council (WGC) said total gold demand in the first quarter increased by 2% compared to the same period last year, reaching 1,231 tons, while value jumped 74% to a record level of 193 billion USD. Investment demand continued to play a key role, with purchases of gold bars and gold coins increasing by 42% to 474 tons - the second highest level in quarterly history.
The strong increase in physical demand, especially from the Asian region, shows that investors are still turning to gold as a risk hedging tool. This is also the reason why optimistic sentiment has not weakened, even when gold prices enter the accumulation phase.
In fact, many experts believe that the long-term drivers of gold are still intact. Bank of America (BofA) continues to maintain the price target of 6,000 USD/ounce in the next 12 months, based on structural factors such as increased global debt and prolonged geopolitical risks.
The World Bank also forecasts that gold prices will remain at a historical high, with an average of about 4,700 USD/ounce in 2026. However, this scenario reflects a more mature stage of the upward cycle, when prices remain high but are more resisted by macroeconomic factors, especially interest rates.
This tug-of-war is shaping the current gold market. Inflation driven by oil prices both strengthens the risk hedging role of gold and delays interest rate cuts, thereby curbing price increases.
In the short term, gold may continue to face pressure. However, in the long term, the big picture has not changed. In the context of increasing public debt and deeper geopolitical rifts, gold is still in a long-term upward trend – although the upward path may fluctuate more strongly.
