It doesn't get much more uncertain than all-out war in the Middle East and oil above $150 a barrel, but counterintuitively, the quintessential hedge gold has failed to find the momentum for a fresh leg up. After rising sharply in the first quarter of 2026 to reach new record highs of over $5,300 per Troy ounce, gold has now entered a prolonged correction and is currently trading (13 May) around $4,700, down more than 15% from its local maximum. Silver is closely correlated with gold and has followed a similar pattern to hit $87 from highs near $120, and the presence of numerous geopolitical factors ordinarily favourable to precious metals does not appear to be enough to spark a fresh wave of growth.
Despite the threat of escalating war and persistent above-target inflation across Europe and the US, we are also seeing very high Treasury note yields and Fed rhetoric that suggests a rate cut could take longer than expected to arrive. Yet, the potential for a quick pivot to a more dovish policy under Trump's new pick for Fed chief, Kevin Warsh, plus the acceleration of already significant gold purchases by global central banks, could easily reverse the supply-demand dynamics that are driving this current downtrend. In this article, we'll look at all these factors and more, as we attempt to predict where gold could be headed in the second half of this year.
Lack of interest
As we mentioned above, gold is currently trading significantly below its $5,327.65 peak achieved during the height of geopolitical and inflation-driven buying earlier in 2026. And although this safe-haven demand remains structurally strong amid no resolution to the ongoing US-Iran conflict, the recent pullback highlights just how sensitive the yellow metal has become to movements in bond yields and monetary-policy projections, which have both moved strongly against the hedge. Following an uptick in inflation towards 3% in April, investors have increasingly scaled back expectations for aggressive interest-rate cuts from the Fed. This expectation was bolstered further by a series of resilient US economic data releases, including stronger labour-market figures and firmer-than-expected services inflation. Consequently, US 10-year Treasury yields have remained elevated in the 4.3–4.7% range, while real yields have continued to hold above 2%, increasing the opportunity cost of holding non-yielding assets such as gold.
The US dollar has also strengthened in recent weeks, supported by these higher relative yields and continued capital inflows into US assets, putting bullion under even more pressure by making it more expensive for non-dollar buyers. Although headline inflation has moderated toward the 2–3% range across several major economies, policymakers have continued to stress caution over premature easing, reinforcing the market's 'higher-for-longer' interest-rate narrative. That combination of elevated yields, a firmer dollar and fading expectations for rapid monetary easing has encouraged some investors to rotate back toward yield-bearing assets after gold's exceptional run earlier in the year.
Still in demand
Despite the recent correction, however, several longer-term drivers of growth continue to underpin the broader bullish case for gold. As we've seen, geopolitical uncertainty remains elevated, with continued conflict in the Middle East, disruptions to key shipping routes, and broader concerns over global fragmentation sustaining safe-haven demand during periods of market stress such as this. But it's the solid central-bank buying that remains one of the most important structural pillars supporting the market, one that could be the catalyst of the next bullish cycle. Gold purchases by central banks have exceeded 1,000 tonnes annually for two consecutive years, with emerging-market regulators redoubling their efforts to diversify their nations' reserves away from the US dollar. Among the largest buyers have been the People's Bank of China, the National Bank of Poland, the Reserve Bank of India, and the Central Bank of the Republic of Türkiye, all of which have steadily expanded their gold holdings over the past year.
What's more, although investor flows into gold-backed ETFs have become more volatile as bond yields recovered, physical demand in Asia has remained comparatively resilient during recent price pullbacks, particularly in China and India. Looking ahead, investors are likely to focus closely on upcoming US inflation data, Federal Reserve guidance, and movements in Treasury yields to determine whether the recent correction represents a temporary consolidation or the beginning of a more sustained retracement. Even so, persistent geopolitical risk, continued reserve diversification by central banks and concerns over long-term fiscal sustainability in major economies will surely provide meaningful support for bullion over the medium term.
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