Gold’s Outlook No Longer Straightforward

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This story features PANTORO GOLD LIMITED, and other companies.
For more info SHARE ANALYSIS: PNR
The company is included in ASX200, ASX300 and ALL-ORDS

Oil-driven inflation, geopolitical uncertainty, central bank buying and selling and logistical issues in the Middle East will all influence the price of gold in 2026.

• The price of Gold has pulled back from record highs due to war in Iran
• Oil price spike suggests higher rate hike risk
• Central banks are selling as well as buying
• UBS adds five new gold juniors to its coverage

By Greg Peel

The price of gold is down -5% since February 27, when Israel and the US launched attacks on Iran, as a strong year-to-date performance, a strengthening US dollar and its highly liquid characteristics have outweighed geopolitical risk-related inflows.

This is not unusual and Morgan Stanley notes similar pullbacks resulting from covid, the start of the Russia-Ukraine conflict, and Trump’s Liberation Day.

Investors have liquidated gold holdings for several reasons in recent months. Prices surged by more than 20% in less than 30 days earlier this year, pushing volatility above 30%, ANZ Bank analysts note, to the highest level since the pandemic.

This sharp rally prompted tactical profit-taking, resulting in more than -150t of gold being sold through February.

Rising prices also triggered multiple increases in margin requirements for gold and silver futures trading across major markets, including Comex and the Shanghai Futures Exchange (SHFE), reducing leverage and weighing on sentiment.

Broad equity sell-offs typically trigger liquidation of gold assets, as was the case in the GFC, covid, the beginning of the war in Europe and now similarly the war in the Middle East.

While it seems counterintuitive that gold should fall when geopolitical risk is heightened, it is simply a matter of leveraged equity investors needing to quickly raise cash to cover margin calls. Once this wash-out runs its course, gold typically re-establishes its status as a hedge against uncertainty.

Morgan Stanley had been highlighting a second half 2026 bull case for gold of US$5700/oz, driven by expectations of continued central bank buying, Fed rate cuts supporting exchange-traded fund (ETF) inflows, and a shift in investor interest in real assets.

But recent events now result in two-way risks.

While geopolitical risk can be supportive for gold, its performance in the second half of 2022, after Russia had invaded Ukraine at a time the covid supply shock was still prevalent, shows us this is not always the case, especially if it drives inflation and Fed rate hikes, Morgan Stanley points out.

Morgan Stanley still sees two cuts this year, assuming the Fed is able to look through inflation. The analysts also note differences to 2022, when post-covid recovery also contributed to rate hikes.

However, if the Fed does end up on hold for longer or even hiking, history suggests ETFs, which are often the swing gold buyer/seller, could liquidate some of their gold holdings.

Morgan Stanley’s forex strategists also see two-way risks for the US dollar, which creates an uncertain outlook for gold. There is also a risk of a stagflation scenario, which is usually positive for gold relative to other assets.

Morgan Stanley continues to highlight its bull case for gold with Fed rate cuts still expected by its economists for June and September.

However, the analysts acknowledge recent events and their potential consequences for macro assets bring more focus on downside risks too, and thus they would rather wait to see how long the conflict lasts to take a stronger directional view.

Gold versus Oil

The US dollar gold price falls if the US dollar rises, and the US dollar has recently strengthened due to its safe haven status, particularly as rising oil prices benefit the US which is a net energy exporter, ANZ analysts note.

In contrast, currencies such as the euro, yen and Swiss franc have weakened, as higher oil prices negatively affect those countries’ trade balances.

Despite the risk of short covering in the US dollar, ANZ views the rebound as temporary, given the US dollar remains overvalued in the analysts’ view. A return to US dollar weakness is therefore likely to drive renewed investment flows into gold.

While concerns are mounting over the Fed’s approach to rate cuts, with higher oil prices raising the possibility of renewed inflation pressures, ANZ sees these pressures as temporary and does not expect the Fed to reverse its monetary policy stance, as the disinflationary trend remains intact.

ANZ’s base case remains for three Fed rate cuts commencing in June, with policy rates declining to 3% by the end of December. Lower interest rates should continue to support investment flows into gold.

Equity market volatility is also likely to persist over the near to medium term. As a result, gold should remain a key portfolio diversifier, ANZ suggests, providing protection against a broad range of macro and geopolitical uncertainties. ANZ maintains a positive price outlook for gold, but shifts a previous September quarter forecast of US$6,000/oz to the end of the year.

Historically, oil price spikes during crises have been short-lived, ANZ notes. This was evident during the 2008 GFC and in the months following Russia’s invasion of Ukraine in 2022, when oil prices briefly surged above US$127/bbl. In both cases, prices reverted quickly, as slower growth, policy tightening and supply responses emerged.

Oil is driven primarily by cyclical and event-driven forces, while gold reflects longer-term concerns around inflation persistence, growth risks and geopolitical fragmentation, ANZ notes.

We have witnessed this year to date, with oil rising from a US$55/bbl (WTI) low in December throughout the ensuing months as US warships moved to the Middle East, spiking to almost US$120/bbl when the first bombs fell, only to revert back to under US$100/bbl in a heartbeat when Trump said this won’t last long.

Now that it is clear the Strait of Hormuz may be closed for some time yet, oil is back over US$100/bbl. Gold, on the other hand, has slipped back in a more orderly fashion and fluctuations remain limited by comparison.

Gold prices by contrast to oil tend to rise steadily rather than to mean-revert following such shocks, ANZ notes. Every major oil shock has coincided with a higher base for gold prices. The post-GFC period marked a structural re-rating higher for gold, while the post-2020 and post-2022 environments reinforced this trend.

While escalation in the Middle East may push oil prices higher in the near term, ANZ suggests supply and demand responses are likely to cap gains and force prices to mean-revert. In contrast, the same geopolitical backdrop reinforces an already supportive structural narrative for gold, helping explain why the price continues to make new highs as oil struggles to hold its peaks.

Although gold prices have been slow to respond to the latest escalation –-unlike during the Russia-Ukraine crisis-– ANZ expects the shifting macro landscape and elevated oil prices to ultimately drive renewed investment demand, reinforcing gold’s role as a hedge against a plethora of macro, financial and geopolitical risks.

Logistical Impact

While there has been much coverage of the plight of global ex-pats (including Americans) being stranded in Gulf states as Iran attacks its neighbours, given no warning forthcoming from Trump, few may realise the grounding of many commercial flights, leading to the prioritising of perishable and essential cargo, has limited the volume of gold being transported by air.

Alternative routes are constrained by security, insurance and border-control risks. Gold is typically transported by air due to its high value-to-volume ratio, ANZ notes.

The UAE plays a critical role as a refining and exporting hub and serves as a transit point for shipments from other gold-producing countries.

India, for example, sources around one-third of its gold imports from the UAE. ANZ points out these logistical challenges are likely to tighten the availability of gold in the physical market.

Central Banks

With gold prices fluctuating and expectations shifting around global interest rates, attention has once again turned to the countries holding the world’s largest reserves of the precious metal, BestBrokers notes, and whether their next moves, from continued accumulation to potential sales, could reshape the balance of the global market.

While some countries accelerated their purchases earlier this year to strengthen and diversify their reserves, others took advantage of elevated prices to realise gains by selling part of their holdings.

Following Poland’s position as the largest buyer last year, central bank demand has broadened in 2026, BestBrokers reports, with more emerging economies entering the market to diversify reserves.

Uzbekistan and Malaysia have already emerged among the notable buyers, while several countries have begun trimming their holdings, led by Russia, needing to finance its own war, Bulgaria, which has shifted gold holdings to the ECB as it switches its currency to the euro, along with Kazakhstan and Kirgizstan.

Smaller purchases were reported by the Czech Republic, Indonesia, China, Serbia, El Salvador, Singapore, Mongolia, and Egypt, highlighting a widening base of buyers.

It is suggested Poland may now sell some of the gold it bought last year to finance its defence requirements.

Gold is likely to remain a focal point for central banks and investors alike, BestBrokers suggests, with a more measured pace of accumulation expected in 2026 compared with the frenzied activity of 2025. Emerging economies are set to continue diversifying their reserves, while larger holders may trim or rebalance positions amid elevated prices.

Geopolitical tensions, inflationary pressures, and currency volatility are expected to sustain gold’s safe-haven appeal, while continued inflows into ETFs could amplify short-term price swings.

Overall, BestBrokers believes the trend points to a broader, more strategic approach to gold reserves, with central banks using bullion not only as a hedge against uncertainty but also as a key tool for managing portfolio risk in a complex global economic environment.

ANZ also expects central bank demand to broaden this year. The main downside risk would be selling by developed-market central banks, although this remains unlikely.

Given the geopolitical and fiscal challenges facing many advanced economies, gold continues to play a crucial role in reserve portfolios, ANZ notes.

Gold holdings have also depleted since 2000, so rather than outright disposals, any adjustments are more likely to occur through swaps or portfolio rebalancing.

Aussie Juniors

As the gold price has risen over past years, Australian brokers have been consistently adding additional, little-known, junior gold miners to their coverage universes. To that end, UBS has now added five new juniors to its coverage, taking its gold coverage universe to 14 names.

UBS initiates on all five with a Buy rating.

In order of preference, UBS has added Pantoro Gold ((PNR)), with a price target of $7.50, WestGold Resources ((WGX)), target $10.25, Minerals 260 ((MI6)), target $1.20, Catalyst Metals ((CYL)), target $11.25, and Ora Banda Mining ((OBM)), target $1.60.

The upside to UBS’ target prices from current traded prices (March 17) range from 16% for Ora Banda to 120% for Pantoro.

Strong volume growth and gold prices remaining elevated provides a healthy pathway to higher earnings and cashflow for these juniors. UBS calculates production volume compound annual growth rates to FY30 for these names range from 8% to 22% with combinations of better utilisation, higher throughputs and higher grades often working in tandem.

UBS remains positive on the backdrop for gold pricing, with uncertainty relating to the Middle East conflict and geopolitics, ongoing trade tensions and the modest outlook for global growth, and de-dollarisation all supportive of the UBS view.

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