The global precious metals market is facing operational and valuation pressures due to shifting U.S. monetary policy expectations and a clear move by the Federal Reserve toward a restrictive stance, leading to a downward revision in near-term price forecasts.
According to a bank's metals research, its previous short-term gold price target of $6,000 per ounce, set in January 2026, is now considered unlikely to be achieved within the current macroeconomic cycle.
From a macroeconomic transition perspective, the market has shifted from an initially anticipated rate-cutting cycle to a strong inflation-driven tightening cycle triggered by an energy crisis, which is the core factor suppressing gold's valuation.
Based on data from the CME FedWatch Tool, financial markets are currently pricing in approximately a 70% probability of a rate hike in September.
The bank's head of metals research, Michael Widmer, stated that the increased probability of rate hikes through December 2026 directly corresponds to the recent pullback in gold prices, compressing the metal's near-term upside potential by about 50%.
The research team further noted that even as geopolitical tensions ease, factors like supply chain disruptions, rising production costs, and geoeconomic fragmentation will continue to support core inflation, simultaneously forcing the Fed to maintain a hawkish monetary policy. The U.S. fiscal deficit remains around 6% of GDP, while foreign investors' holdings of U.S. Treasury debt continue to decline. The latest central bank gold survey shows that 74% of institutions expect the dollar's share in global reserves to decline over the next five years.
The bank pointed out that gold currently represents only about 5.5% of global equity and bond asset allocations. If the market fully prices in rate hike expectations, there remains long-term potential for a shift to a higher allocation in gold.
The World Gold Council's Q1 2026 report shows global gold demand increased by 2% year-on-year to 1,231 tonnes. However, the total value of demand surged 74% to $193 billion, with prices retreating after briefly surpassing $5,400 per ounce.
Jewelry demand declined significantly, with global jewelry consumption falling 23%, including a 32% drop in China and a 19% drop in India. In contrast, bar and coin demand grew 42% to 474 tonnes, with Chinese retail investment surging 67% to a record 207 tonnes.
Gold ETFs saw a net inflow of 62 tonnes during the same period, with Asian inflows of 84 tonnes partially offsetting outflows from the United States.
Central banks continue to be consistent buyers of gold. Over the past four years, global central banks have purchased an annual average of about 1,000 tonnes, double the average of the previous decade.
A WGC survey indicates 90% of central banks view gold's performance during crises as important, 89% expect to continue increasing their holdings over the next year, and 84% expect gold's share in global reserves to rise.
Additionally, about 50% of central banks are increasing gold reserves through domestic procurement mechanisms using local currency, with 53% of these coming from emerging markets and developing countries.
While the United States leads with 8,133.5 tonnes of gold reserves and Germany ranks second with 3,350.3 tonnes, this localization of central bank procurement is altering the structure of global gold flows and having an ongoing impact on mining supply chains and market liquidity.
Comments