Certainty of uncertainty

If there’s been one consistent theme for precious metals over the last few months, it’s uncertainty. And unsurprisingly, the gold price has reflected that.

There are currently several competing forces pulling the market in opposite directions and depending on your outlook, it’s easy to build a convincing case for either side. The bears will argue this is the slow deflation of a bull market, with gold potentially drifting back towards $3,800 per ounce by year end. The bulls, meanwhile, see a period of consolidation before another sharp move higher, with some forecasts still pointing towards $5,900.

Somewhere between those two extremes sits reality. The challenge is working out which direction the next meaningful move comes from. Helpfully, this week may offer some clues.

Markets continue to react to any murmur of a potential resolution in Iran, while fresh US economic data could shape expectations around the Federal Reserve and interest rates later this year.

Inflation, stagflation and the Fed guessing game

Traditionally, gold performs well during periods of inflation and economic weakness. As a safe haven asset, it has historically benefited when confidence in currencies and broader financial markets begins to wobble.

That’s partly why UBS remains bullish on gold, recently commenting that:
“We’re now in more of a stagflation environment as opposed to disinflation.”

That outlook has helped support forecasts as high as $5,900 per ounce by the close of 2026, not too far from Goldman Sachs’ revised estimate of $5,400.

But recent months haven’t followed the script many expected. Despite inflationary pressures remaining elevated, precious metals have softened and consolidated rather than surged. The reason largely comes down to the strength of the US dollar and Treasury yields, which have remained firmer than many analysts predicted. Gold, after all, doesn’t pay interest. So when yields rise, investors naturally begin looking elsewhere. Which means all roads currently lead back to the Federal Reserve.

At the start of the year, markets had at least one interest rate cut broadly priced in, with some analysts seeing an 80% chance of easing. Since the escalation of the Iran conflict however, the backdrop has changed dramatically. Rising energy prices have altered inflation expectations, with some now assigning a greater probability to a rate hike by year end than a cut. This week’s U.S. Personal Consumption Expenditures (PCE) data may offer further insight into where the Fed leans next, given it remains one of the central bank’s preferred inflation measures.

That said, not everyone believes higher inflation automatically means higher rates. Economist Dr Mark Thornton recently warned:
“Our national debt is over 120% of GDP… The idea of raising rates significantly at this time would kill the economy.”

Which rather neatly sums up the balancing act facing policymakers.

The international picture

Moving onto global economic behaviour brings further competing forces.

While short-term sentiment remains mixed, the longer-term picture for gold hasn’t disappeared. Goldman Sachs noted this week that central bank demand may actually be stronger than previously reported, suggesting official purchases have been undercounted over the last six months. Central banks don’t tend to buy gold on emotion. Sustained accumulation suggests continued concern around currency exposure and broader geopolitical uncertainty, particularly as some nations look to reduce reliance on the US dollar. All of which supports a bullish outlook on the price of gold in the medium term.

But there are complications there too. India this month raised import duties on gold and silver from 6% to 15% in an attempt to encourage domestic investment and support the Rupee. Malaysia has now followed suit with a 10% duty on LBMA gold bars. Both countries are major importers of precious metals, meaning demand dynamics may begin shifting elsewhere.

Whilst Turkey, has reportedly sold a significant portion of its reserves as economic pressure from the Iran conflict intensifies. Not because gold has lost its appeal, but because one of gold’s greatest strengths is also its liquidity.

Iran remains at the centre of everything

Underpinning almost all of this remains the conflict in Iran. Its impact on oil and global energy prices continues to ripple through inflation, interest rate expectations and currency markets, which in turn feeds directly into precious metals pricing.

That’s why markets are reacting so sharply to every new headline.

Earlier this week, there were strong indications that an agreement may be close, with suggestions the Strait of Hormuz could reopen sooner than expected. Within hours, reports of further US “defensive strikes” on Iranian targets shifted sentiment again.

And so the cycle continues. Which explains why precious metals currently feel stuck in a holding pattern. The fundamentals remain, but so do the headwinds.

The difficulty now is not identifying that a major move may come. It’s working out which direction it arrives from first. Because when this market eventually breaks out of its current range, it’s unlikely to do so quietly.