Gold prices are under pressure in the near term as a combination of softer overall demand, rising expectations for higher US interest rates, and a strengthening dollar weigh on the precious metal. However, analysts at Metals Focus and Commerzbank anticipate a recovery in the second half of 2026, driven by robust investment flows and eventual monetary easing.
Demand Outlook: Jewelry Slump, Investment Surge
Metals Focus, a specialist precious metals research firm, projects total gold demand will decline by 2% this year to 4,177 tonnes. The drop is primarily attributed to an 11% contraction in jewelry demand and reduced purchases by central banks. High gold prices have shifted consumer preferences toward bars and coins, pushing physical investment demand up by 15%—the highest level since 2013. For the first time on record, investment demand is expected to surpass jewelry demand, reflecting a structural shift in how gold is consumed.
Central Bank Buying Moderates
Central bank purchases are forecast to fall by 15% this year, according to Metals Focus. Rising energy prices have forced some central banks to intervene in currency markets, leading to gold sales. The Russian Central Bank is expected to be a net seller, even as the Polish Central Bank continues aggressive accumulation, with reserves now at 613 tonnes. This divergence highlights the uneven nature of official sector demand.
Near-Term Risks: Dollar Strength and Rate Expectations
Gold came under fresh selling pressure on Monday, with FXStreet analysts warning that the metal remains vulnerable to further declines. Persistent war-related inflation risks have strengthened expectations for Federal Reserve rate hikes, boosting the dollar and pushing bond yields higher—classic headwinds for non-yielding gold. Technically, gold is approaching support near its March lows; a break below that level could open the door to additional corrective moves.
Other near-term risks include sustained high prices suppressing jewelry consumption in key markets like India and China, renewed central bank selling, and stronger US economic data that could delay rate cuts. However, any escalation in Middle East tensions or signs of economic slowdown could quickly revive safe-haven buying. A resolution to the Iran conflict that eases energy prices would also support gold by reducing inflation fears and paving the way for earlier Fed rate cuts.
Investment Demand Provides a Floor
Despite the overall demand decline, the strong rise in bar and coin buying reflects robust retail and institutional interest in gold as a hedge against uncertainty. This shift is helping to cushion the impact of weaker jewelry and official sector demand. Carsten Fritsch, commodity analyst at Commerzbank, noted that both his firm and Metals Focus expect gold to resume its upward trend in the second half of 2026, supported by renewed investment flows and eventual monetary easing.
Long-Term Bullish Factors Remain Intact
Structural drivers for gold remain strong, including ongoing de-dollarization efforts by central banks, elevated global government debt levels, and gold’s traditional role as an inflation and currency hedge. As Fritsch stated, “Like us, Metals Focus anticipates a resumption of the upward trend in the gold price for the second half of the year.”
For context on broader market dynamics, see our coverage of FTSE 100 Holds Steady as Energy Surge Offsets Bank Weakness Amid Iran Tensions and Dow Futures Rise 130 Points as Markets Weigh Earnings, Chip Weakness, and Key Data.
Outlook: Transitional Phase Ahead
The gold market is in a transitional phase. While total demand is projected to moderate in 2026, the surge in investment buying signals healthy underlying interest. Near-term price weakness appears likely as high interest rate expectations and a strong dollar dominate sentiment, but the second half of the year holds potential for a recovery as these pressures ease. With geopolitical risks still present and structural tailwinds firmly in place, gold is likely to remain range-bound or slightly softer in the short term before resuming its longer-term uptrend later in 2026.
This article is for informational purposes only and does not constitute financial advice.
