Gold update: Gold pauses above USD 5,000 as energy shock clouds the global outlook

Gold pauses above USD 5,000 as energy shock clouds the global outlook

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Key Points:

• Gold remains above USD 5,000, with prices consolidating as markets weigh geopolitical tension and a worsening global growth outlook.
• The disruption to Persian Gulf energy flows has lifted oil and gas prices, increasing the risk of a stagflationary backdrop.
• Short-term pressure on gold has come from a firmer US dollar and reduced expectations for US rate cuts this year.
• The broader outlook for precious metals remains supportive, with geopolitical risk, fiscal concerns and safe-haven demand continuing to underpin sentiment.

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 energy-intensive 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 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 long-term 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.