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On Wednesday, gold prices moved higher as investors seized on the previous session’s dip to increase their holdings of the safe-haven asset amidst escalating conflict in the Middle East. Spot gold prices rose as much as 2.3%, breaking through $5,200 per ounce and recovering some of the ground lost during Tuesday’s sell-off, when prices had dipped to around $5,000 per ounce amid inflation concerns. U.S. gold futures also edged up by about 1%.
This rebound in gold prices was also aided by a slightly weaker U.S. dollar on Wednesday. This followed a broader market downturn driven by fears of war with Iran and its potential inflationary impact. Notably, inflation concerns had prompted some gold investors to sell positions to meet margin calls on other assets in their portfolios, which was one factor contributing to gold’s 6% drop on Tuesday. Analysts at BMO Capital Markets, including Helen Amos, noted that the sharp decline in gold was “surprising, given gold had been benefiting from safe-haven demand,” and that this correction was due to “inflation concerns causing a spike in Treasury yields, a stronger U.S. dollar, and forced liquidations to protect balance sheets, which outweighed gold’s safe-haven attributes.”
Despite experiencing two significant price corrections, gold has still gained 17% in the first nine weeks of 2026, marking its best start to a year in decades. Behind this, persistent geopolitical and trade tensions continue to boost demand for safe-haven assets. Data from the U.S. Commodity Futures Trading Commission (CFTC) shows that the net long positions held by fund managers in gold have fallen to their lowest level in nearly a decade since late January, highlighting a sharp pullback in bullish bets. However, Peter Kinsella, Global Head of FX Strategy at Switzerland’s UBP (UBSG.SW), believes this relatively low level “should limit the downside for gold prices.” He further stated, “I think gold prices will definitely rebound; the long-term drivers remain unchanged. If anything, the uncertainty surrounding the outcome of the war highlights the persistent geopolitical risks more than ever.”
Major banks also maintain their long-term bullish forecasts for gold. JPMorgan Chase projects gold prices could reach $6,300 per ounce by the end of 2026, as more private investors enter the market. BNP Paribas also believes gold could hit $6,000 per ounce as long as macroeconomic and geopolitical risks persist.
However, the path higher for gold prices also faces headwinds. Inflation risks stemming from high prices of commodities like oil could force major global central banks, such as the Federal Reserve, to keep interest rates higher for longer, thereby reducing the appeal of non-yielding gold for investors. While gold is sometimes viewed as an inflation hedge, rising prices accompanied by high interest rates can sometimes pressure gold prices, as was the case in 2022.
George Cheveley, a portfolio manager at asset management firm Ninety One, offers a unique perspective on gold. He suggests that gold is best described as a tool to hedge against extreme economic scenarios. “So, if inflation is high, gold can play a role; if there’s deflation, gold can also play a role,” he said. “The worst-case scenario for gold is a stable economic environment.”
Currently, tensions in the Middle East remain high, with the U.S. indicating it will strike deeper into Iran and the conflict now involving over a dozen countries. This will undoubtedly continue to provide support for gold prices.
