Gold to shine in an era of uncertainty

Gold prices may face short term pressure as rising crude oil prices driven by heightened geopolitical tension in the Middle East complicate the path towards policy easing by the United States Federal Reserve. Even so, any correction in gold prices can be viewed as an opportunity for gradual accumulation since the broader macroeconomic factors that support gold remain intact.

Central banks continue to increase gold purchases as part of their reserve diversification strategy. At the same time, concerns around inflation and rising government debt keep gold relevant as a hedge against uncertainty. Growing investments in gold exchange traded funds (ETF) and expectations of further weakness in the United States dollar could also provide support to gold prices.

Recent geopolitical developments and trade friction have strengthened demand for safe haven assets. Tensions between the United States, Israel, and Iran have raised fears that the conflict could widen across the region and continue for an extended period.

If the conflict persists and the Strait of Hormuz remains closed, crude oil prices may rise further and push inflation higher. In such a situation, central banks may face a difficult environment similar to 2022 where they must balance the challenge of controlling inflation while supporting economic growth.

From an investment perspective, a staggered accumulation strategy during price corrections may be considered.

International gold prices

• Price corrections towards the $4800 to $4600 range may provide accumulation opportunities
• The long-term bullish outlook may remain intact as long as prices hold above the $4200 support level
• Potential upside targets are seen around $6000 to $6200

MCX gold prices

• Price dips towards ₹149000 to ₹140000 may be considered as buying opportunities
• Potential upside targets are around ₹190000 to ₹200000
• A crucial support level lies near ₹128000

The recent surge in crude oil prices due to escalating tensions between the United States, Israel, and Iran has made the inflation outlook more uncertain and increased concerns among policy makers. This situation may place the United States Federal Reserve in a difficult position where it must balance the need to control rising inflation while also supporting economic growth.

In the near term, the heightened conflict between the United States and Iran poses risks to both inflation and economic growth in the United States. However, the overall impact may remain limited because the United States has a relatively strong level of energy self-sufficiency. At the same time, recent economic data has indicated weaker than expected job numbers, which has raised concerns about the strength of the labour market.

According to the current outlook, the United States Federal Reserve may not begin cutting interest rates before September 2026 as policy makers continue to assess the economic impact of the conflict between the United States and Iran. Impact of war on inflation and economy will depend on its severity and duration as well as the magnitude of disruption at the Strait of Hormuz.

In this environment, gold prices may face short term pressure because higher crude oil prices and geopolitical uncertainty could delay the path towards policy easing by the United States Federal Reserve. Even so, any correction in gold prices may be viewed as a strategic accumulation opportunity since the broader macroeconomic factors supporting gold remain intact over the long term.

Central banks are expected to continue increasing their gold holdings as part of their efforts to diversify reserves. Gold is widely viewed as a hedge against global fiscal concerns, inflation, and geopolitical risks. At the same time, lingering uncertainty around the United States tariff policy may weaken confidence in American assets.

Concerns regarding the long-term safe haven status of the United States dollar may also support demand for gold. The position of the dollar as the global reserve currency is increasingly facing challenges. Rising discussions around de dollarisation could further strengthen the demand for gold and support its prices.

Many countries are expected to continue increasing their gold holdings in reserves. This shift helps reduce dependence on the United States dollar while also protecting economies from potential sanctions and currency volatility.

Global confidence in the dollar has gradually weakened over time. In 2025, about 57% of global central bank reserves were held in dollar denominated assets. This is significantly lower than the 71% share recorded in 1999.

The trend is also visible in the actions of major economies. China, the world’s second largest economy, has been gradually reducing its holdings of United States Treasury securities. China currently holds around $683 billion in Treasury assets, which is the lowest level since 2008. At the same time, China has been steadily increasing its gold purchases. Gold now accounts for approximately 9.6% of China’s total foreign exchange reserves.

The United States dollar has gradually lost purchasing power due to the expansion of money supply, rising inflation, and a sharp increase in government debt. In addition, economic and policy uncertainty has also weighed on the strength of the dollar.

Over long periods of time, gold has shown more stable purchasing power compared to fiat currencies. While gold prices may experience short term fluctuations, its relative stability has made it an important asset for central banks as part of their reserve holdings.

Another important factor is the sharp rise in the United States M2 money supply. M2 is a broad measure of money in circulation and includes cash, demand deposits, small certificates of deposit, savings accounts, and money market funds. The significant expansion of money supply has been a key factor supporting higher asset prices. In this environment, gold continues to be viewed as a store of value and a hedge against inflation.

A rise in the Geopolitical Risk index reflects growing global tensions. The index saw a sharp increase in 2022 following Russia’s invasion of Ukraine and has remained elevated since then due to continued tensions in the Middle East. Higher geopolitical risk levels often support demand for gold as investors turn to safe haven assets during periods of uncertainty.

The global geopolitical environment has become increasingly unstable. The year 2026 began with rising tensions across several regions including Eastern Europe, the Middle East, Venezuela, Mexico, and the Arctic region. The United States and Israel conducted joint operations targeting Iranian officials, military commanders, and strategic facilities. Iran responded by launching ballistic missiles and drones at United States military bases in the Gulf Cooperation Council region and Israel. The closure of the Strait of Hormuz further disrupted global supply chains.

Escalating tensions in the Middle East and Eastern Europe have increased the movement of capital towards safe assets such as gold. Investors remain concerned that a prolonged conflict between the United States and Iran could weaken global economic growth and create further instability in financial markets.

Trade related uncertainty has also added to market volatility. The global trade policy index has moved higher in recent years as trade tensions increased. In 2025, the index reached record levels amid rising global trade disputes and changes in United States trade policy. Recently, the United States administration imposed temporary tariffs of up to 15% on imports for a period of 150 days after earlier tariff measures were struck down by the Supreme Court.

The situation has created additional uncertainty for global businesses and investors. There is limited clarity on how the United States government will refund the large amounts already collected from importers under earlier tariff measures. Investors are also concerned that the administration may attempt to introduce new tariffs through alternative legal channels, which could prolong trade uncertainty and further strengthen demand for safe haven assets such as gold.

Global debt levels remain elevated and are expected to stay high as fiscal deficits continue to rise. These deficits reflect the costs of Covid 19 related subsidies, social welfare spending, and increasing interest payments on existing debt. Total global debt has increased by nearly $29 trillion and has reached a record level of $348 trillion. Global debt may continue to rise as governments increase borrowing to meet spending requirements.

The United States national debt has crossed $38 trillion, with the debt to gross domestic product ratio close to 126%. The United States is paying about $970 billion each year only to service interest on this debt. Investors are concerned that if these payments continue to increase, the funds available for infrastructure, healthcare, and education may decline, which could affect long term economic productivity.

At the same time, ongoing geopolitical tensions in the Middle East may require the United States to continue spending to maintain its military presence. Rising debt and persistent fiscal deficits could increase the risk of fiscal dominance. In such a situation, the Federal Reserve may face pressure to keep interest rates low so that debt servicing remains manageable, even if inflation remains elevated.

Investment demand for gold has increased sharply. Total investment demand reached 2175 tonnes, surpassing the previous record of 1805 tonnes seen in 2020. This rise was mainly supported by strong inflows into gold ETFs and robust demand for gold bars and coins. ETFs contributed more than 801 tonnes of demand, while bars and coins accounted for about 1374 tonnes.

Demand for gold ETFs in China rose significantly. Holdings increased by 52% in just five months until January 2026. During this period, nearly 100 tonnes were added, taking total holdings to 286.3 tonnes.

In India, gold ETF holdings also reached a major milestone. Total holdings crossed 100 tonnes for the first time and increased by a record 15.5 tonnes in a single month, reaching 110 tonnes by January 2026.

In the current environment, investors are expected to continue increasing their exposure to gold ETFs in their portfolios. Fresh investment demand may emerge in 2026 as investors view gold as a store of value.

Persistent geopolitical tensions in the Middle East and Eastern Europe, uncertainty around global trade policies, rising global debt levels, and expectations of further interest rate cuts by the United States Federal Reserve may continue to support investment demand for gold.

Total global demand for gold continued to increase and crossed 5000 tonnes for the first time. The rise in demand was mainly driven by strong investment demand and continued purchases by central banks. Investment demand remained strong due to persistent geopolitical and trade uncertainty, interest rate cuts by the United States Federal Reserve, concerns about a global economic slowdown, and the need for diversification.

Although the pace of central bank purchases slowed slightly, buying activity remained significant. In 2025, central banks purchased about 863 tonnes of gold. Over the past three years, annual purchases have remained above 1000 tonnes. This level is considerably higher than the period from 2010 to 2021, when the average annual purchase by central banks was around 473 tonnes.

Among individual countries, the National Bank of Poland remained the largest buyer for the second consecutive year. China also continued its gold buying trend, extending its purchases for 16 consecutive months. Central banks are expected to continue adding gold to their reserves as part of their strategy to diversify reserve assets.

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