HSBC’s Willem Sels and Lucia Ku observe that Gold failed to rally during the Middle East conflict and has traded lower despite hitting a record high earlier in the year. They argue US yields and a stronger Dollar are key headwinds, keeping prices range-bound near term, but expect diversification demand, central bank buying and ETF inflows to support further upside by year-end.

Yields cap Gold but support builds

"Gold did not rally during the Middle East conflict and has largely moved in tandem with equities. Our analysis indicates that US yields are the primary driver of gold prices. We believe gold may remain range-bound in the near term amid elevated real yields and a stronger USD. However, demand for portfolio diversification, central bank buying and steady ETF inflows should support gold prices over the medium term. We continue to view gold as an effective diversifier against broader portfolio risks."

"Our analysis indicates that US yields are the primary driver of gold prices. When yields rise, the opportunity cost of holding a non-yielding asset increases, putting pressure on gold prices. Moreover, gold has been less effective as an equity hedge in 2026, having largely moved in tandem with equities."

"We believe gold is likely to remain range-bound in the near term given elevated real yields and a strong USD. However, demand for portfolio diversification, central bank purchases and steady ETF inflows continue to support our bullish view on gold and its role as a diversifier against broader portfolio risks. We anticipate further upside for gold by year-end."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)