Thoughts on Gold
Thoughts on Gold
In 2026, gold and precious metals have for the most part experienced a strong correction. The price of gold reached $5,437 on 29 January, before falling to a low of $4,400 on 26 March.
The catalyst has been a combination of a one two punch. The first and somewhat steeper sell of was due to technical selling, beginning on 30 January. The outbreak of war in Iran intensified selling, contradicting the conventional wisdom that gold increases on a flight to safety.
Plainly, oil and energy stocks have been the main beneficiary since the outbreak of the conflict. While everything else has acted inversely to this. Bonds, equities and precious metals have all fallen as the prospect of escalation increased, while oil fell and everything else rose as some resolution was announced.
Conversely today (8 April), we have seen that oil has dropped below $100 as a two week ceasefire was announced overnight, while equities, bonds, and gold jumped.
The purpose of this article is to explore and rationalise the recent developments and movements in the price of gold (and to the same extent other precious metals). Explaining and commenting on geopolitical aspects of war while worth understanding in their own right, is beyond the scope of this article.
Inverse relationship
The outbreak of the US/Iranian war has upended market expectations. Previously markets were expecting and pricing in central bank base rate cuts. Now though, as the increase in the price of oil cascades throughout the wider economy, this will push up inflation. [Cleary, this is partially correct in that the supply shock will increase short to medium term price inflation. However, it will not create inflation in a monetary sense, more of which further into the article.]
Albeit, they more or less get to the same place as the end result is inflation. This is where the market logic has clearly broken down. In what world does an investor sell gold with the prospect of higher inflation.
However, lost in all of this is that the gold price has held up well. Despite several months of persistent selling, negative sentiment (Tumbling gold price puts ‘haven’ status in doubt) chicanery (Silver shorting as per Investing.com), and lest it be forgotten the appointment of a new hawkish Fed chairman (arguably a misnomer in itself) gold has started to stabilise.
Understandably, the gold price tends to be sensitive to interest rates. What seems to be missing though is that while central bankers may raise short term (i.e. base rates), negative real interest rate will only increase as inflation takes off like it did in 2022.
For example, producer prices in the US and UK both increased by circa 0.8% on the month in February. Annualising these would result in inflation of circa 10%. It should also be said that these producer price indices relate prior to the outbreak of the war. The war will only accelerate price increases when the March readings are published.
Base case
With all of that being said, and with the sell off flushing out weaker hands and speculative traders. Realistically, this will provide a base for the gold price (and eventually all other precious metals). On 27 and 30 March we have already started to see gold reassert itself, whereby the gold price started to move independently and upwards despite oil price rises.
So the question is, is the outlook for gold good given the ceasefire announced on the evening of 7 April? The somewhat glib answer is that the outlook is the same, if not far better than prior to the outbreak of the war.
At a minimum, the spike in the oil price and other commodities will induce a mild-to-severe recession in the US and Europe. The downside case being that supply shocks may precipitate a financial crisis (e.g. UK’s 2022 “mini” pension fund / GILT crisis). The private credit crisis is starting to sound like the next canary.
The sharp increase in the price of brent crude doesn’t increase the supply of money (otherwise known as monetary inflation). What will drive money supply is Government’s response to the energy crisis. For example, the Irish Government have already cut fuel duty to protect voters from the worst of the energy crisis. Albeit this tax decrease without a corresponding decrease means the source of funding to pay for this is debt.
Credit is effectively cash, so an increase in European sovereign credit directly in Ireland (and the Euro area) increases the euros in circulation i.e. inflation.
At ‘best’, the conflict will result in anaemic growth and continued price inflation across Western economies. Lo and behold, even the fiat centric Financial Times are (finally) acknowledging stagflation, granted it never went away but better late than never ($ | Stagflation is back | 26 March 2026).
Final Point
Gold and real assets have been one of the best performing asset classes in 2023, 2024 and 2025. The recent knockbacks and shake out has been helpful, as the wider market still doesn’t believe in the price. The market is seeing this correction as proof that gold is overvalued.
The longer gold is overlooked the better, as more gold, or gold stocks can be purchased at what are again now offer excellent value. It should only be a matter of time before the market realises that gold and precious metals will be the best port in the coming inflationary wave. So if investors are already positioned in gold and real assets the best course of action is to do next to nothing.
If one is still unsure whether or not gold will recover in the long run, one just needs to listen to the US Treasury secretary Scott Bessant. In a recent Q&A, a NBC news anchor asked the Treasury Secretary (quite reasonably), are taxes going to be raised to fund the war? His response was that it was a “ridiculous question” before going on to say “not at all”. The short video is worth a watch, while bearing in mind the United States’ national debt has recently surpassed $39T. Up a mere trillion from the previous high of $38T, a milestone passed only last October.
