Gold prices fell in May as the conflict in Iran pushed bond yields and the USD up, while weakening expectations of the Fed cutting interest rates. However, factors such as increased public debt, dedollarization trends, persistent inflation and stable gold buying demand from central banks continue to be an important supporting foundation for precious metals, according to Ole Hansen - Head of Commodity Strategy at Saxo Bank.
In a new report released on Monday, Mr. Hansen said gold prices had fallen for the third consecutive month in May.
Despite recent adjustments, gold has still increased by 5% since the beginning of 2026, up 36% in one year and up to 91% in the past two years" - he emphasized.
According to Saxo Bank experts, the prolonged disruption in the Strait of Hormuz has kept oil, gas and refined fuel prices at a high level, creating pressure on gold.
Instead of triggering the traditional wave of seeking safe-haven assets, rising energy prices have increased concerns about inflation, pushed up bond yields, supported the USD and reduced expectations of further Fed interest rate cuts," Hansen said.
The combination of these factors has created significant obstacles for an unprofitable asset like gold.
The gold adjustment also coincided with the global stock market continuously hitting new peaks. Meanwhile, some central banks were forced to sell off their gold reserves to support the domestic currency or compensate for rising energy costs.
According to Mr. Hansen, recent developments show an important difference that many investors often overlook when assessing gold as an inflation hedging tool.
Gold usually performs best during periods of financial stress or economic weakness, when inflation concerns are accompanied by reduced real yields and weakened USD," he explained - "The current situation is completely different. An energy shock from the supply side both increases inflation and supports bond yields and USD. This combination may temporarily reduce the attractiveness of gold despite rising consumer prices.
Mr. Hansen believes that investors are currently focusing too much on interest rate prospects, causing gold to face difficulties as yields rise and the possibility of the Fed cutting interest rates declines.
However, he believes this will not be a factor that dominates the market forever: When the geopolitical situation gradually stabilizes and the energy shock weakens, investors will return to the structural drivers that have supported the gold market for many years.
One of the most important drivers is the gold buying demand of central banks.
Although some countries have recently reduced their gold holdings, most of these transactions are more tactical than changing long-term strategies," he said.
The trend of diversifying foreign exchange reserves is still being strongly maintained, especially in emerging economies, where the proportion of gold in reserves is still significantly lower than in developed countries.
According to Mr. Hansen, conflicts such as Russia-Ukraine or US-Iran further strengthen the strategic role of gold in national reserves.
Concerns related to sanctions risks, reserve diversification, fiscal sustainability and the risk of long-term currency devaluation are driving central banks to reduce dependence on traditional reserve assets.
Therefore, Saxo Bank forecasts that central banks will continue to be net buyers of gold in the coming year.
Another supporting pillar comes from gold demand in China.
Although investment cash flow fluctuates according to market sentiment, the long-term desire of Chinese investors to diversify assets away from real estate and traditional financial channels continues to support gold demand" - Mr. Hansen said.
He said that the People's Bank of China (PBOC) has increased gold reserves for the sixth consecutive month in April. This move is likely to contribute to boosting gold imports through Hong Kong (China) to triple, reaching 58.6 tons.
In addition, the increasing public debt and budget deficit in many major economies continue to strengthen the role of gold as a solid asset.
Government borrowing is still very high, while huge investments in electrification, artificial intelligence, energy security and climate change adaptation will continue to put pressure on commodity demand and long-term inflation expectations," he said.
Technically, Mr. Hansen noted that gold is continuously receiving buying support around the 200-day moving average, currently near 4,400 USD/ounce.
The market has tested this price range twice in the recent adjustment and both times new buying power appeared. This shows that long-term investors are still actively operating below the market.
Although many investors are still waiting for more clarity regarding the Middle East conflict before increasing their gold holdings, Saxo Bank believes that as attention moves away from short-term fluctuations in energy prices and geopolitical news, the market will return to focus on the fundamental drivers that have supported gold prices in recent years.
We continue to maintain a positive outlook on the long-term outlook for gold, especially if the trends of foreign exchange reserve diversification, fiscal expansion and dedollarization continue to be accelerated in the coming years," Hansen concluded.
