Although the recent conflict in the Middle East has increased gold price volatility in the short term, the medium and long-term outlook for this precious metal remains positive thanks to high geopolitical risks, increased fiscal deficits and buying demand from central banks, according to Mr. Rodolphe Bohn - Foreign and Commodity Strategist at HSBC Bank.
Mr. Bohn said that gold prices had a volatile start in 2026, falling from 544 USD/ounce at the end of January to 4,400 USD on March 26 amid escalating conflict with Iran.
In this risk-avoidance psychology phase, oil prices rise sharply, the USD becomes a preferred safe-haven asset, bond yields rise and stock markets fall" - he wrote - "Gold does not play a clear'geopolitical barrier' role, as investors sell gold to increase liquidity, while the USD absorbs most of the safe-haven demand".
However, the recent ceasefire shows that gold may recover quickly as the market stabilizes again.
Mr. Bohn believes that the relationship between gold and oil prices is flexible and can vary depending on the nature of the market shock. "Although before the conflict occurred, these two commodities had a clear correlation, this relationship quickly became neutral when oil and gold prices went in opposite directions" - he said - "Normally, when the USD appreciates, it puts pressure on both gold and oil, but the supply shock in the Middle East pushed oil prices up even when the USD increase put pressure on gold. In the current context, a sharp increase in oil prices does not necessarily lead to a similar reaction to gold prices.
According to Mr. Bohn, monetary policy is still the key factor determining the trend of precious metals. Although HSBC does not expect much from interest rate cuts, persistent inflation and increased growth risks will still support gold prices.
High real yields are a disadvantage for gold because this is a non-performing asset" - he said - "Did-term yields have become more important since the conflict began, as they increase along with the strengthening USD, weakening stock markets and higher oil prices. Although we forecast that the US Federal Reserve's operating interest rate will remain stable in the 2026–2027 period, which may limit gold's growth potential, the risk of an inflationary trough will still support demand for the precious metal.
In addition, HSBC believes that fiscal factors and demand from central banks will continue to support gold prices in the long term.
Increased budget deficits and public debt in the US and many other countries are driving demand for tangible assets, especially as investors are concerned about financial stability and policy room" - Mr. Bohn said - "International Monetary Fund estimates show that US public debt could reach nearly 100% of GDP by 2025, while increased global defense spending also increases the debt burden. These trends are unlikely to reverse in the medium term, thereby supporting gold prices in the long term.
Although the gold buying demand of central banks has cooled down compared to the peak period 2022–2024, some central banks are still selling gold to preserve foreign exchange reserves amid rising energy import costs and defense spending," he added. "However, this demand may improve again by the end of the year when long-term diversification strategies are reaffirmed.
In addition to investment demand, Mr. Bohn also noted that high gold prices are changing the physical supply-demand structure, in which jewelry demand is most affected - "Demand for gold bars and small gold bars remains weak, while demand from institutions for large gold bars is more stable, supported by regulatory changes in markets such as India and China" - he said - "On the supply side, mining output is expected to increase slightly in the 2026–2027 period, while recycling activities are also increasing as high prices push scrap supply back to the market".
These changes mean there will be more supply for investors to absorb" - he warned - "If investment demand remains weak for a long time, this additional supply may limit the upward momentum of gold prices. However, recently demand from individual investors is becoming more important for price movements.
He concluded that the short-term direction of gold depends heavily on the degree of cooling tensions in the Middle East, including the ability to maintain a ceasefire or move towards a complete end to the conflict, the official reopening of the Strait of Hormuz and the stability of oil prices at a lower level.
These conditions will help reduce financial pressure, cool down inflation concerns and pull yields down. We still maintain a positive outlook for gold in the medium and long term," Mr. Bohn added.
