A fundamental shift is occurring in the gold market's driving logic. A stark market reality has been laid bare by recent analysis: the power to set gold's price has decisively returned to the Federal Reserve.
According to the latest precious metals research, as buying pressure from other demand segments has broadly cooled, the capital flows into and out of interest rate-sensitive gold ETFs have regained their role as the marginal price-setter for gold. The long-dormant negative correlation between the gold price and US real interest rates has reasserted itself with force. This signifies that the direction of gold is once again dictated by one central factor: the Federal Reserve's next policy move.
The research institution has revised its gold price forecasts downward, slashing its third-quarter average estimate to $4,300 per ounce and its fourth-quarter estimate to $4,500 per ounce, a reduction of 20% to 25% from prior expectations. This indicates that the previous phase of seemingly unstoppable bullishness, driven by safe-haven buying and aggressive central bank purchases, has concluded.
Although the gold price has seen a technical rebound from around the $4,000 per ounce level, the firm explicitly warns that near-term risks remain skewed to the downside. Should summer economic data come in hotter than expected, forcing the Fed to initiate rate hikes sooner than anticipated, gold could break below $4,000, potentially triggering technical selling that would drive prices toward the $3,500 to $3,600 range.
Concurrently, the firm maintains a long-term bullish stance on gold. It anticipates a renewed uptrend in 2027 as structural buying from central banks and physical demand returns, projecting the annual average price to climb to approximately $4,775 per ounce.
Regarding other precious metals, silver is undergoing a fundamental transition from a "supply-constrained" to a "balanced" market state, with the gold-to-silver ratio expected to move further toward 70 to 75. Silver prices are forecast to oscillate within a $62 to $65 per ounce range. Platinum, currently trading near $1,600 per ounce, has reached what the firm identifies as a critical incentive price for South African supply. It is expected to recover alongside gold, reaching $1,800 by year-end and $1,950 by the end of 2027. Palladium continues to face pressure from eroding demand due to electric vehicle adoption and is forecast to recover to $1,350 by year-end, with its 2027 average price expected to hold around $1,300.
ETF Flows Regain Control: Gold Re-"Tethered" to Real Rates
Understanding the current gold market requires revisiting recent history. Prior to 2022, gold prices exhibited a strong negative correlation with US real interest rates. As real rates rose, the opportunity cost of holding non-yielding gold increased, prompting ETF holders and futures investors to reduce positions. This simple, stable dynamic dominated the market for over a decade.
Post-2022, this relationship broke down. During the Fed's aggressive rate-hiking cycle, ETF holdings saw massive outflows, but explosive growth in central bank buying not only filled this gap but also freed gold from the "shackles" of real rates. Subsequently, the rise of "currency debasement" trades in 2025, along with rapid expansion in Asian ETF holdings and momentum-driven capital inflows, collectively propelled gold to record highs.
However, since March 2026, this dynamic has reversed once more. Initial de-leveraging triggered by US-Iran tensions, coupled with hawkish signals from the new Fed Chair, have caused other demand segments to collectively "cool off."
In India, the government raised import tariffs and tightened restrictions to protect its external accounts, causing a sharp contraction in physical demand. In China, persistently low domestic gold premiums reflect weak retail demand. While central banks resumed net purchases in April and May, the pace has become notably more cautious. Retail investors, after the Fed Chair reaffirmed a commitment to fighting inflation, have seen the "debasement trade" narrative fade, with capital shifting toward new themes like AI semiconductors.
With demand segments broadly quiet, interest rate-sensitive ETF flows have become the sole active marginal force. Since late February, global gold ETFs have seen net outflows of approximately 128 tonnes (a decline of about 3%), a pattern that closely corresponds with the roughly 50 basis point rise in the US 10-year real interest rate.
Yet the actual price decline has far exceeded what ETF outflows alone would suggest. Gold's sensitivity to real rates is now even more acute than in the pre-2022 regime, with each 1 basis point increase in real rates corresponding to roughly a $20 drop in the gold price, contributing to a cumulative decline exceeding 20%.
This "excess sensitivity" reflects the extreme weakness in other demand segments. Their absence not only amplifies the impact of real rate moves but also erodes the foundation of price support for gold.
The Federal Reserve's Path: Patience is Golden, But Upside is Capped
The base case forecast is for the Fed to hold rates steady this year, with the first hike delayed until the third quarter of 2027. However, market pricing has already run ahead of this. The OIS forward market is currently pricing in almost a full rate hike for this year and expects nearly 40 basis points of cumulative tightening by April 2027, a timeline that is both earlier and more aggressive than the base case.
Even if the Fed ultimately proves as patient as forecast, a problem remains: the upward slope of the OIS curve is likely to be sticky. This is due to recent strong momentum in the US labor market, a more hawkish stance on inflation from the new Chair, and the fact that the current 10-year Treasury yield remains over 20 basis points below its model-implied fair value, suggesting room for further upside in medium-term rates.
In this context, barring a clear weakening in employment or inflation data, the market will continue to bring forward expectations for Fed hikes rather than significantly unwind hawkish bets. This "persistently upward-sloping OIS curve" will act like a cap, suppressing any recovery in ETF holdings and dampening broader investor demand for gold.
Based on updated real rate forecasts, the firm has sharply revised its 2026 global gold ETF flow forecast from a net inflow of about 400 tonnes down to a net outflow of approximately 50 tonnes.
Short-Term Downside Risks Are Pronounced, Long-Term Thesis Remains Intact
For the near-term outlook, the firm clearly states that risks to the base case are tilted to the downside, stemming from two primary paths.
The first path involves the Fed being forced to hike rates sooner. Analysts see the 1999-2000 tightening cycle as the closest historical analogy. If the market begins pricing in a similar scenario, medium-term Treasury yields could rise another 50 basis points, making a break below $4,000 per ounce for gold highly likely and triggering technical selling toward the $3,500-$3,600 target range.
The second path involves an unexpected strengthening of the US dollar. Analysts note the shadow of "American exceptionalism" is re-emerging. A key risk is that if AI becomes a more widely used geopolitical lever, the growth divergence between the US and other economies could widen further, fueling a stronger dollar rally that would add extra downward pressure on dollar-denominated gold.
Despite the cautious near-term outlook, the firm has not abandoned its long-term bullish stance on gold. The report emphasizes that the "debasement trade" is not dead, merely temporarily overshadowed by the hawkish monetary policy narrative.
Two structural forces supporting long-term bullishness remain. First, central bank buying resumed net purchases in April and May, with strong Chinese gold import data suggesting official accumulation continues even amid weak domestic retail demand. The firm has slightly lowered its 2026 global central bank net purchase forecast to 600 tonnes from 640 tonnes, but the strategic logic for long-term accumulation remains unchanged. Second, the eventual removal of Indian import restrictions would trigger a concentrated release of pent-up demand, and a cyclical recovery in Asian physical demand would also provide support.
The firm expects gold to trend higher quarter by quarter in 2027 as these structural forces re-engage, with a full-year average around $4,775 per ounce. However, this recovery path is contingent on the Fed achieving a more substantial dovish pivot, a necessary condition to reignite gold's upward momentum.
Silver: Transitioning from "Scarcity Premium" to "Supply-Demand Rebalancing"
Silver is undergoing a profound shift in its fundamental backdrop. Last year, extreme tightness in the physical market drove silver to significantly outperform gold. This year, that logic is reversing.
Forecasts indicate that solar panel demand for silver will decline by approximately 30% in 2026, equivalent to a reduction of about 60 million ounces. This means that after five consecutive years of supply deficits, the silver market is expected to move toward balance this year and could even see a slight surplus in 2027.
This shift in the supply-demand balance directly impacts silver's volatility relative to gold. On days when gold falls, silver is expected to decline more sharply, reversing last year's asymmetric pattern where silver often rose more than gold during rallies.
Consequently, the gold-to-silver ratio is forecast to move further toward 70 in the second half of 2026 and 75 in 2027. Silver prices are expected to fluctuate within a $62 to $65 per ounce range.
Platinum and Palladium: Following Gold Lower, Awaiting Stabilization Signals
Platinum and palladium have also been hit by substantial ETF selling, with metal being supplied into the physical market, driving prices lower in tandem with gold.
For platinum, the current price near $1,600 per ounce is approaching what is considered the "fundamental incentive price." Below this level, necessary supply investment by South African miners risks being shelved, potentially leading to more severe and prolonged supply tightness.
It is expected that as gold stabilizes in the second half of 2026, platinum will find firmer support, with its average price recovering to $1,800 by year-end and rising further to $1,950 by the end of 2027.
For palladium, the ongoing rise in electric vehicle adoption is tipping the supply-demand balance toward significant surplus. Analysts believe the platinum-palladium price spread needs to widen further to accelerate substitution trends and support palladium demand. Palladium is forecast to recover to $1,350 by year-end, but its 2027 full-year average price is expected to remain constrained around $1,300.
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