Gold temporarily loses its luster amid the murky situation in the Middle East

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Gold temporarily loses its luster amid the murky situation in the Middle East

Despite the decline in gold prices in recent months under the pressure of rising energy prices, the strength of the dollar, and changing interest rates, the structural factors supporting the precious metal are still strongly present.

An economic analysis believes that , global reserve diversification processes, continued central bank purchases, along with Chinese demand and sovereign debt concerns, may return momentum to gold in the long term, despite continued short-term pressures related to inflation and energy markets.

Unprecedented record peak

The analysis said: Since GoldAn unprecedented record peak near the $5,600 levels in late January, the yellow metal went through a period full of challenges; Prices fell for the third month in a row in May.

He added that this was by less than 2%. This decline came as investors turned their attention to the conflict in Middle Eastand its broader repercussions on global energy markets, inflation rates, the path of the dollar and interest rates.

He pointed out that despite this recent decline, the precious metal is still high by 5% since the beginning of 2026, by 36% over the past year, and by about 91% over the past two years.

Strait of Hormuz

According to the analysis, the ongoing disruption in shipping movement through the Strait of Hormuz has led to Keeping oil, gas, and refined fuel prices at high levels, which created a market environment that is historically less supportive of gold.

He continued: "Instead of stimulating traditional flows into safe havens, higher energy prices have stoked inflation fears, pushed bond yields higher, strengthened the US dollar, and dampened expectations of an additional Fed rate cut."

According to the analysis, these developments combined to build strong headwinds against an asset that does not generate a return, such as gold.

Price correction

This price correction also coincided with a renewed upward boom in stock markets, especially in sectors related to artificial intelligence, which limited investors’ appetite for alternative assets.

At the same time, several energy importing countries faced increasing financing pressures, which prompted some Central banks have to monetize parts of their gold reserves to support local currencies or to help offset high energy costs.

Hedging Tool

The analysis said: "This latest setback once again highlights a fundamental discrepancy that investors often overlook; Gold is widely accepted as a hedge against inflation, but the nature of the inflation shock is what makes the difference"

He added: "From a historical perspective, gold performs best during periods of financial turmoil or economic weakness when inflation fears are coupled with declining real yields and a weak dollar. The current situation is completely different; A supply-side-driven energy shock pushes inflation higher while simultaneously supporting yields and the dollar. This combination would temporarily weaken the attractiveness of gold despite the rise in consumer prices"

Interest rate expectations remain a major focus among precious metals investors. Since it is a non-interest bearing asset, gold becomes more attractive when prices fall due to the lower opportunity cost of holding it. Conversely, when markets postpone their expectations for a rate cut, gold often faces difficulties in rising.

This dynamic has been clearly evident in recent months, as traders have reduced their bets on monetary easing in response to rising energy prices and persistent inflation risks. However, although interest rate expectations have weighed on sentiment, they are unlikely to remain the dominant driver indefinitely.

Once geopolitical conditions stabilize and the energy shock begins to fade, the analysis expects investors to return their focus to the structural factors that have supported the gold bull market in recent years.

Central Banks

Central bank demand is at the top of that list. Although some countries have recently reduced their holdings, these sales appear tactical rather than strategic. The broader trend towards diversifying reserves is still strong, especially among central banks in emerging markets, which still maintain relatively small allocations of gold compared to advanced economies.

He explained that recent geopolitical developments have strengthened the strategic justifications for holding gold; Concerns about sanctions risks, diversification of reserves, financial sustainability, and long-term currency depreciation continue to motivate central banks to reduce reliance on traditional reserve assets.

He expected central banks to remain on the net buying side during the coming year.

Chinese Demand

He noted that Chinese demand still constitutes an important pillar of support. Although investor participation has fluctuated in line with overall market sentiment, the long-term desire of Chinese investors to diversify their savings away from real estate and traditional financial assets continues to support demand for bullion.

China’s central bank raised its gold reserves in April for the sixth month in a row, which likely contributed to the tripling of total gold imports through Hong Kong to 58.6 metric tons.

At the same time, concerns over the federal sovereign debt persist in Major economies support the investment feasibility of tangible assets. Government lending remains at elevated levels, while investment requirements linked to the electrification transition, artificial intelligence, energy security, and climate adaptation are likely to keep upward pressure on commodity demand and long-term inflation expectations.

Strong Support

Technically, gold has so far found strong support near its 200-day moving average, which currently sits just above $4,400 an ounce.

The market has tested this level. Twice during the last patch, and each time it succeeded in attracting renewed buying interest. Although this does not eliminate the risk of further weakness in the short term, it does indicate that long-term investors remain active at the lower levels of the market.

At the moment, it appears that many investors prefer to wait until there is greater clarity on the conflict in the Middle East before increasing the size of their financial positions.

Structural drivers

The analysis prepared by Ole Hansen, head of commodity strategy at Saxo Bank, added that, however, once attention shifts away from daily volatility For energy prices and geopolitical headlines, the market will once again focus on the structural drivers that have helped support prices in recent years.

He noted that Saxo Bank maintained a positive outlook for long-term construction in the coming years, especially if the trends of reserve diversification, fiscal expansion, and abandonment of the dollar continue to gain momentum.