What are the reasons behind gold's rally stalling?
Ibrahim Muhammad: Gold entered the final quarter of 2026 without achieving the price levels anticipated by some investment firms and global banks, as supportive factors for the yellow metal collided with monetary and financial pressures that limited its ability to continue rising. Instead of geopolitical tensions, debt concerns, and increased demand for safe-haven assets driving prices to new highs, the US dollar regained some strength, and yields on US Treasury bonds rose, increasing the cost of holding gold, which does not generate periodic income. According to the World Gold Council, gold fell by approximately 8.5% during September, despite gold-backed exchange-traded funds recording inflows of $10 billion, reflecting the divergence between investment demand on one hand, and the impact of monetary changes and trading positions on the other. JPMorgan had lowered its forecast for gold prices in the fourth quarter of 2026 to $4,500 per ounce, due to expected weak demand and the risk of rising interest rates, after its previous estimates were more optimistic. Meanwhile, UBS set a target of $4,800 per ounce by the end of 2026, with the possibility of prices rising to $5,400 if political and financial risks escalate. The World Bank, for its part, predicted an annual average of approximately $4,700 per ounce in 2026.
Why did price forecasts falter? The main reasons for gold’s failure to break above the $4,500 per ounce level include a combination of interrelated factors:
1. Rising US bond yields: The increase in the yield on 10-year US Treasury bonds to around 5.3% during September raised the opportunity cost of holding gold, prompting some investors to favor income-generating assets.
2. Strength of the US dollar: The appreciation of the US currency made gold more expensive for holders of other currencies, reducing its relative attractiveness in global markets.
3. Shifting interest rate expectations: Inflation concerns and continued energy price increases limited bets on monetary easing, weakening one of the key drivers of gold’s upward movement.
4. Profit-taking and investor repositioning: The significant gains achieved by the metal during the previous rally encouraged some investors to reduce their positions and realize profits.
5. Decline in futures positions: The decrease in speculative positions contributed to increased price pressure, even as investment flows continued into gold funds.
These factors indicate that price forecasts were not necessarily based on an absence of risks, but rather on an assessment of how those risks would impact gold demand, which was affected by the strong US dollar and high yields. Gold has long benefited from wars and international tensions as a safe haven, but developments in 2026 showed that the relationship is not linear. Geopolitical escalation may push prices higher, but its impact may diminish if accompanied by rising energy prices, inflation, and bond yields. Moreover, investors do not respond to crises in a uniform manner; some turn to gold for hedging, while others prefer dollar liquidity or US debt instruments, especially when market volatility increases. Consequently, while ongoing geopolitical risks provide structural support for gold, they do not guarantee a continuous upward trend unless accompanied by a weakening dollar, falling yields, or a clear increase in investment demand.
The role of central banks: Central bank purchases remain one of the most important long-term support factors for gold, as several countries seek to diversify their reserves and reduce reliance on major currencies, alongside hedging against financial and geopolitical risks.
According to the World Gold Council, net purchases by central banks and official institutions reached approximately 289 tonnes in the second quarter of 2026, a 62% increase year-on-year. However, demand during the first half of the year totaled 345 tonnes, the lowest level for a comparable period since 2022, due to a slowdown in the first quarter and some sales. Estimates from Metals Focus, cited in a Reuters report, suggest that central bank purchases could decline by about 15% in 2026 to around 720 tonnes, remaining above pre-2022 levels. In contrast, a World Gold Council survey showed that 45% of participating reserve managers intend to increase their gold holdings over the next twelve months. Here lies the paradox: official purchases provide a supportive floor for the market, but alone they are insufficient to offset the exit of investment liquidity or pressures stemming from rising yields.
Gold: Between the Dollar and Stocks. Historically, gold tends to move inversely to the US dollar and real bond yields, but this relationship is not constant under all circumstances. During periods of turmoil, the dollar and gold may rise together due to demand for liquidity and hedging, while gold may decline despite escalating risks if yields rise sharply. Its relationship with equity markets varies depending on the nature of the shock. In waves of acute fear, gold may benefit as investors shift to safe-haven assets, but in cases of widespread liquidation, investors may also sell gold to raise liquidity or cover losses in other markets. Thus, gold is not a guaranteed hedge against every equity downturn; its performance is determined by a mix of dollar trends, interest rates, liquidity, and investor flows.
What does 2027 hold for gold? The outlook for gold in 2027 appears linked to three main scenarios:
- The Upside Path: A decline in interest rates and yields, a weaker dollar, or a resurgence of geopolitical and financial shocks, combined with continued central bank purchases, could restore momentum to prices, pushing the ounce above the $5,000 level.
- The Sideways Path: Continued economic growth with relatively high yields, and sustained official demand without significant acceleration, could keep gold moving within a volatile range.
- The Downside Path: Continued strength in the dollar, rising yields, declining investment demand, alongside calmer risks, could impose further price corrections.
The World Gold Council had previously indicated in its mid-2026 forecasts that for gold to return to higher levels, such as $4,500 per ounce or more, a clear catalyst is needed, such as economic weakness, renewed geopolitical risks, or a shift in interest rate expectations toward easing. Therefore, it does not seem prudent to assume that gold will automatically return to its previous peaks during 2027. The yellow metal still relies on long-term supportive factors, but it requires an improvement in the monetary environment or escalating risks to resume a sustainable upward trend.
Finally, gold has not lost its appeal as a tool for hedging and diversifying reserves, but its price stagnation demonstrates that geopolitical risks and central bank purchases do not operate in isolation from the rest of the markets. Its trajectory in 2027 will remain contingent on the balance between hedging demand on one hand, and the strength of the dollar, bond yields, and investment flows on the other.
