Recent conflicts in the Middle East have triggered significant volatility across global markets, with gold prices experiencing sharp short-term swings. However, the medium to long-term outlook for gold remains positive.

HSBC's FX and Commodities Strategist, Rodolphe Bohn, noted that while short-term price fluctuations are driven by geopolitical risks, persistently rising geopolitical tensions, expanding fiscal deficits in major economies, and continued gold purchases by central banks will collectively support gold prices at higher levels.

The gold market has seen notable volatility early in 2026. By the end of January, prices had climbed to a high of $5,415 per ounce, but subsequently fell to around $4,400 per ounce by March 26, a drop of nearly 20%, largely due to escalating conflicts in the Middle East, particularly involving Iran. This sharp movement reflects the market's rapid response to risk events.

Bohn indicated that during this risk-averse phase, Brent crude oil prices surged significantly, the US dollar strengthened noticeably as the preferred safe-haven asset, bond yields rose, and equity markets declined. He further explained that gold did not act as a typical geopolitical hedge during this period because investors sold gold holdings to raise liquidity, while the dollar absorbed most of the safe-haven demand.

However, he added that recent ceasefire agreements have shown that as market conditions stabilize, gold prices can rebound quickly, providing a positive signal for future trends.

The relationship between gold and oil prices is not static but adjusts based on the nature of market shocks. Bohn pointed out that before the conflict, the two commodities showed a clear positive correlation, but as events unfolded, oil and gold prices temporarily moved in opposite directions, with the relationship quickly becoming neutral.

He analyzed that a strong US dollar typically exerts pressure on both gold and crude oil. However, under the influence of Middle East supply disruptions, Brent crude prices rose even as the dollar strengthened, while gold was weighed down by the dollar's strength. In the current market environment, a strong rise in oil prices does not necessarily lead to a similarly strong reaction in gold. Investors need to monitor this dynamic relationship closely.

Monetary policy remains a key factor influencing gold's future trajectory. Bohn stated that while HSBC does not expect significant interest rate cuts to provide a direct boost, persistent inflationary pressures and potential threats to economic growth will offer important support for gold.

He specifically mentioned that high real yields typically create a headwind for gold, as the metal itself generates no income. Since the conflict began, the impact of long-term bond yields has become more pronounced, moving in tandem with a stronger dollar, weaker equities, and rising oil prices. Although the Federal Reserve's policy rate is expected to remain largely unchanged in 2026 and 2027, potentially limiting gold's upside to some extent, the risk of stagflation will continue to support market demand for gold.

Beyond short-term factors, ongoing fiscal dynamics and central bank demand are seen as core drivers for gold's long-term strength. He noted that rising fiscal deficits and debt levels in the US and other countries are prompting investors to increase allocations to hard assets, particularly during periods of concern over financial stability and policy flexibility. IMF estimates show that US debt-to-GDP ratio approached 100% in 2025, while increased defense spending globally further adds to debt burdens. These trends are unlikely to reverse in the short to medium term and will therefore provide strong support for gold prices over an extended period. Regarding central bank activity, Bohn indicated that the peak in central bank gold purchases seen between 2022 and 2024 has cooled, with some banks selling gold to protect foreign reserves due to rising energy import costs and higher defense spending. Nevertheless, as long-term asset diversification policies are reinstated, central bank gold demand is expected to gradually recover later this year.

Elevated gold prices are also reshaping the physical supply and demand landscape. Bohn pointed out that jewelry consumption has been notably impacted, while demand for gold coins remains weak. In contrast, institutional investor demand for large gold bars has held relatively firm, supported by regulatory adjustments in markets such as India and China.

On the supply side, mine production is expected to see modest growth from 2026 to 2027, while high prices will stimulate increased recycling of scrap gold, leading to higher supply from this source. These changes imply that more physical gold will need to be absorbed by investors.

Bohn cautioned that if investment demand remains low for an extended period, this additional supply could restrain further price gains. However, recent demand from retail investors has begun to show a more significant influence, injecting new vitality into the market.

The short-term direction of gold prices largely depends on the extent of de-escalation in the Middle East. Bohn concluded that if ceasefires hold and eventually lead to a full cessation of hostilities in the region, a formal reopening of the Strait of Hormuz, and stabilization of Brent crude at lower levels, financial market stress would ease, inflation concerns could moderate, and bond yields might decline—all creating a more favorable environment for gold. Based on this analysis, HSBC maintains a bullish outlook for gold over the medium to long term. Although short-term fluctuations may still occur due to geopolitical events, dollar movements, and oil price volatility, multiple structural support factors are driving gold toward higher price ranges over a longer horizon.

For investors focused on commodities and asset allocation, gold remains a sector worthy of close attention and strategic allocation.

As of 10:49 Beijing Time on April 21, spot gold was reported at $4,803.68 per ounce.