By Giulia Petroni
Gold is back in the geopolitical crosshairs, caught between safe-haven demand and prospects of higher interest rates for longer.
Persistent geopolitical uncertainty is expected to drive investment demand and central-bank buying this year, according to the World Gold Council. Yet, the same forces are pushing oil prices higher, stoking inflation and reinforcing expectations of elevated interest rates--traditionally a headwind for non-interest-bearing assets like gold.
Gold's blistering run has experienced a jarring reversal; after gaining 65% in 2025 and breaching $5,000 a troy ounce for the first time earlier this year, prices have tumbled nearly 11% since the Iran war began.
Rising energy prices are reviving inflation fears, leaving the Federal Reserve with less room to cut rates. Because gold doesn't pay interest, higher-for-longer rates make it less attractive as investors can earn more elsewhere.
"Following an explosive rally that took gold, and not least silver, to fresh record highs, both metals have since corrected-not because their long-term fundamentals have materially weakened, but because the macro backdrop has shifted abruptly in the wake of the Iran war," said Ole Hansen, head of commodity strategy at Saxo Bank.
Price pullbacks in January and March coincided with outflows from exchange-traded-funds and spikes in trading activity, suggesting profit-taking and deleveraging, the WGC, a trade group, said in its latest report. The sharper March decline came as investors appeared to sell gold to raise liquidity.
Still, underlying demand remains firm. The council expects Asia to remain a key driver of investment demand, while central-bank buying is projected to stay strong and near 2025 levels.
"Our view remains that investment and central bank demand will be supported by ongoing geopolitical risk, with further investment impetus from elevated inflation," the WGC said. Gold is typically seen as a hedge against inflation because it tends to hold its value when currencies lose buying power.
In the first quarter, global gold demand fell 6% from the previous quarter but rose 2% on year to 1,231 metric tons, supported by retail investment. Although volume growth was modest, higher bullion prices lifted the total value of demand to a record of $193 billion, the council said.
Central-bank buying increased 3% despite some selling during the period, with the council flagging that potential shifts in reserves could still happen amid Middle East disruptions, liquidity needs and foreign-exchange currency management.
Buying of gold-backed ETFs continued in the first quarter, albeit at a slower pace than a year earlier due to outflows from U.S. funds in March. Jewelry demand, by contrast, dropped 23% to 300 tons in the first quarter, the lowest since mid-2020, as record prices curbed consumption.
"Demand was strangled by the price rising to record highs in January-even after its subsequent correction gold remained above prior historical levels," the WGC said. "Weaker jewellery demand alongside growing investor interest in gold has changed the composition of demand in recent years."
High prices are likely to continue taking their toll on jewelry, while ETF demand may fall short of highs seen in 2025 if interest rates stay higher for longer, the WGC said.
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
04-29-26 0214ET
