Key Takeaways
- Gold prices have come off their all-time record highs amid the Iran war, though the structural drivers that drove them to a record remain in place.
- Central-bank purchases have become major drivers of demand, pushed by rising public debt, reserve diversification, and concerns over possible sanctions.
- The appeal of an asset with no counterparty risk has grown as trust between nations weakens.
While the price of gold has come down this year, structural factors continue to support it, and could push it back above USD 5,000 by year-end.
Gold prices have dropped more than 20% from January’s all-time high, but remain 25% higher than a year ago. This sets the stage for 2026 to be one of the most volatile years on record for the asset just as its historical relationships with interest rates and risk are turned on their heads.
Gold has sharply declined ever since the Iran war triggered energy supply bottlenecks that have battered the world economy, a backdrop that normally supports the prices of safe-haven assets.
“The decline reflects investor positioning adjustments, as they sold gold to provide margin for other asset classes,” says Peter Kinsella, head of investment services UK at Union Bancaire Privée.
Meanwhile, two structural drivers supporting the gold price remain in place, flows and central bank purchasing data show.
Central Bank Demand to Continue Supporting the Gold Price
For much of the past two decades, gold’s performance could largely be explained through one variable: real, or inflation-adjusted, interest rates. When inflation-adjusted yields rose, gold typically weakened. When they fell, gold rallied.
“This relationship has really broken down since 2022,” says Stephen Coltman, head of macroeconomics at 21Shares. The turning point, he argues, was the measures brought in after Russia invaded Ukraine. “It appears that the freezing of Russia’s FX reserves triggered an increase in demand from central banks for assets that could not be sanctioned, such as physical gold holdings.”
Kinsella also argues that the sanctions imposed on Russia fundamentally altered how many emerging-market central banks assess reserve management. “Around 80% of the world’s total FX reserves are held by emerging-market central banks,” he says. “They realized that if they have a political disagreement with the US, they were running an asset-confiscation risk.”
The result has been a wave of central-bank buying that many analysts see as one of the defining forces behind gold’s rise. According to new European Central Bank estimates, gold has leaped ahead of US Treasuries in the global central bank reserve mix, confirming a notable shift in reserve composition. The ECB’s June review says that gold accounted for 27% of total official global reserves as of end-2025, above US Treasuries at 22% and the euro at 15%.
The appeal of gold in this context is straightforward. Unlike sovereign bonds or foreign exchange reserves, physical gold carries no counterparty risk. As trust between nations becomes more fragile, that characteristic appears increasingly valuable.
The Other Tailwind for Gold: Retail Investor Demand
The gold story is not only about central banks. Retail investors have also returned to the market, though for somewhat different reasons. According to UBP’s Kinsella, much of the rally since late 2025 was driven by purchases of ETFs, bullion products, and even gold-backed digital assets.
21Shares’ Coltman sees a wider social and economic shift behind the trend. “There is a growing unease and recognition among the broader public that public finances are on an unsustainable trend,” he says. “That will likely result in weaker currencies, higher inflation and higher interest rates over time.”
“Japanese retail investors, for example, have seen their currency plunge in value over the past five years as the government attempts to inflate away its debt burden, and demand for gold in Japan has understandably been very strong as it offers a way for retail investors in Japan to try to preserve the purchasing power of their savings,” Coltman adds.
According to the World Gold Council, global bar and coin demand has been robust, with a 42% year-over-year increase in demand over the last quarter.
“Retail investors can be a powerful force when they buy en masse, as we have seen in the US equity market,” says Ned Naylor-Leyland, manager of the Jupiter Gold & Silver Fund.
What to Expect from Gold in 2026
While experts differ on short-term price dynamics, they broadly agree that the structural drivers behind gold’s rally remain intact. 21Shares’ Stephen Coltman believes the stabilization of the Middle East could remove a temporary headwind. “If a deal with Iran is reached and we get through the current Middle East crisis, then gold prices should resume their previous upward trend and get back above USD 5,000 an ounce by year-end,” he says.
Paradoxically, a further escalation of the conflict could initially weigh on prices rather than support them. Countries hit by higher energy costs may need to raise liquidity by selling reserves, including gold, as Turkey and other energy-importing nations have done in previous periods of stress.
According to Peter Kinsella, the next leg higher for gold requires two conditions: a reduction in geopolitical uncertainty and lower front-end interest rate expectations. “We think that it will trade higher by year-end to levels of USD 5,500 per ounce,” he says.
The bigger picture, however, extends beyond the next few quarters. For investors, the key question is whether the forces that have driven record central-bank buying since 2022 are temporary or represent the early stages of a lasting shift in the global monetary order.
