Gold has struggled somewhat in recent weeks even as dark clouds gather over the Middle
East and the outlook for the global economy becomes increasingly uncertain. Prices
continue to hold comfortably above USD 5,000, yet the lack of a stronger bid in the face of
rising geopolitical tension has raised questions among investors.
The current market backdrop is dominated by one of the most significant disruptions to
global energy flows in decades. The interruption of crude, gas and refined fuel supplies
from the Persian Gulf has triggered sharp gains across several commodities—from oil and
natural gas to diesel, LNG and fertilizers. Such moves increase the risk of a renewed
inflation shock while simultaneously threatening global growth, creating the classic
ingredients for a stagflationary environment.
In this context, gold’s muted response may appear counterintuitive. However, the
explanation partly lies in the metal’s role as one of the most liquid markets in the
commodity complex. During periods of elevated uncertainty, investors often seek to raise
liquidity, and gold frequently becomes a source of funds to meet margin calls or rebalance
portfolios. This dynamic has contributed to the recent sideways price action.
At the same time, the short-term interest rate market has adjusted expectations,
effectively pricing out the prospect of US rate cuts in 2026. Combined with a firmer US
dollar, this shift has created an additional headwind for gold in the near term. Higher real
yields tend to reduce the relative appeal of non-yielding assets, particularly when markets
interpret rising commodity prices as an inflation risk that could prompt tighter monetary
policy.
We believe this interpretation risks overlooking the nature of the current shock. The surge
in energy prices is primarily the result of a supply disruption rather than a demand-driven
boom. Historically, supply shocks carry very different macroeconomic implications. Instead
of signalling an overheating economy that requires higher interest rates, they often act as a
tax on growth by raising production costs and reducing consumer purchasing power.
If sustained, an energy shock of the current magnitude could slow activity across energyintensive
economies, including the United States and Europe. In such a scenario, the
Federal Reserve may eventually face a difficult policy trade-off. While higher energy costs
could lift headline inflation, weakening economic momentum could simultaneously push
policymakers toward supporting growth rather than maintaining restrictive financial
conditions.
This is why we believe the market’s assumption that the Federal Reserve will avoid cutting
rates may ultimately prove premature. Should economic momentum weaken materially, the
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Weekly Commodity Update
policy focus could shift toward stabilising growth rather than strictly fighting inflation
generated by supply constraints.
Importantly, the structural reasons behind the strong investor demand for gold in recent
years have not disappeared. If anything, they have arguably strengthened. Rising
geopolitical tensions continue to support demand for safe-haven assets, while persistent
fiscal deficits in several major economies—most notably the United States—remain a longterm
concern for investors focused on currency stability and purchasing power.
Central bank demand, which has been a major pillar of the gold market over the past
several years, may moderate somewhat as prices rise. With gold’s share of total reserve
portfolios increasing relative to traditional assets such as government bonds, some central
banks may slow the pace of purchases. However, the broader strategic motivation—
diversification away from currencies and geopolitical risk—remains firmly in place.
Against this backdrop, we maintain a constructive outlook for the precious metals sector.
While short-term volatility and liquidity-driven selling may continue to produce periods of
consolidation, the broader macro environment remains supportive. Continued geopolitical
tension, fiscal uncertainty and the risk of a stagflationary backdrop provide a favourable
setting for hard assets.
We therefore maintain our positive outlook for gold and continue to see potential for prices
to reach USD 6,000 in the coming quarters. Should this scenario unfold, silver could also
extend its gains and potentially revisit USD 100. Beyond that level, however, the market
may begin to encounter headwinds as elevated prices risk curbing industrial demand while
simultaneously encouraging additional supply from recycled scrap.
Commodities Report: Gold pauses above USD 5000 as energy shock clouds the global outlook – Insights from Saxo Bank
