Precious metals consultancy Metals Focus has indicated an optimistic view for the trajectory of gold in the latter half of 2026.

This perspective is founded on the premise that the economic and political costs associated with prolonged conflict could lead to a swifter resolution, thereby mitigating the risk of a sustained oil crisis.

While inflationary pressures are anticipated to persist, the firm diverges from the growing market consensus that the Federal Reserve might raise interest rates within the next 12 months. This is due to the possibility that policymakers may tolerate elevated inflation levels to avert an economic slowdown.

Matthew Piggott, Director of Gold and Silver at Metals Focus, highlighted that the drivers from 2025 remain in place. These include the ongoing uncertainty surrounding US government policies, persistent market concerns about the long-term outlook for the US dollar, continued high geopolitical risks, and elevated stock valuations.

Collectively, these factors further reinforce gold's role as a safe-haven asset and a tool for portfolio diversification.

2025 Performance: Exceptional Investment Inflows Fuel Gold's Strongest Gains in Decades

Gold prices surged by 44% in 2025, marking their most robust performance since 1979.

The core driver behind this rally was exceptionally strong investment inflows.

A significant departure from established norms in trade, domestic, and foreign policy by the new US administration, coupled with its continued loose fiscal stance, spurred these investment flows.

Pressure on the US dollar and market apprehensions regarding its future role as the de facto reserve currency also provided support for gold prices.

In addition, reserve managers continued their shift from the US dollar to gold throughout last year.

Matthew Piggott noted, "Although central banks' net purchases declined by approximately one-fifth after three consecutive years exceeding 1,000 tonnes, the 2025 level remained significantly higher than pre-2022 figures."

Despite the rising gold price, supply growth remained constrained.

Mine production, benefiting from increased output at existing mines, project expansions, and enhanced artisanal and small-scale mining activity, grew by a modest 2.0%, yet still reached a record high.

Recycled supply increased by a similar 2.8%, but remained well below its 2012 peak.

The impact of the gold price was more pronounced on the demand side. Jewellery demand was hit the hardest, falling by 19% to its lowest level in Metals Focus's data history (excluding the COVID-impacted year of 2020).

In contrast, physical investment grew by 16%, reaching a 12-year high, primarily driven by bullish price expectations and heightened economic and geopolitical uncertainty.

As Matthew Piggott pointed out, "This growth was also fueled by a further shift among consumers from jewelry to bars and coins, with the Chinese (+28%) and Indian (+17%) markets leading the gains."

2026 to Date: Gold's Early-Year Rally Reverses Amid Shift in US Rate Outlook

Supported by the same factors that drove investment inflows in 2025, gold started 2026 on a strong footing.

Strong momentum and the consecutive setting of record highs created a degree of self-reinforcing effect, pushing the gold price to a historic peak of $5,595 per ounce in late January.

However, the nomination of Kevin Warsh for Federal Reserve Chair alleviated market concerns about Fed independence and reinforced expectations for a more hawkish interest rate outlook, leading to a subsequent correction in gold prices.

Concurrently, the US-Iran conflict also exerted downward pressure on gold by pushing up inflation expectations, lifting sovereign bond yields, and further bolstering the case for higher interest rates.

Gold's recent underperformance relative to the US equity market has also impacted short-term investor sentiment.

Fundamental support for the gold price has been limited. Central bank sales have increased this year, but overall, they remain net buyers.

Jewellery demand continues to face pressure in a high-price environment, and physical investment has cooled after a strong start to the year.

Matthew Piggott added, "The price correction following the January rally, combined with recent range-bound price action, has disappointed many individual investors. Several key bar and coin markets have also been severely impacted by high oil prices, squeezing household disposable income."