Since May 2026, the international gold market has faced persistent selling pressure. By the close of trading in New York on May 26, spot gold had dropped 1.45% to $4,504.35 per ounce, continuing its downward trend. At 02:05 Beijing time, it hit a new daily low of $4,482.79. During Asian trading hours on May 27, spot gold briefly fell below the $4,500 mark, down 0.16% for the day, hovering near $4,500.
This recent decline has shown a clear anomaly: despite escalating geopolitical tensions, gold prices have dropped instead of rising. On May 25, the US military launched a self-defense strike in southern Iran, sharply raising geopolitical risks. Yet, contrary to traditional expectations, spot gold fell below $4,550.
The core reason lies in a shift in market trading logic from "geopolitical risk aversion" to "inflation and interest rate expectations." "After the US suddenly struck Iran, spot gold fell below $4,550. This reflects a fundamental change in market logic—from ‘geopolitical risk aversion’ to ‘inflation and interest rate expectations,’" explained Li Gang, Research Director at the China Foreign Exchange Investment Research Institute. The market is now more concerned that risks in the Strait of Hormuz could drive up oil prices, reignite global inflationary pressures, and force the Federal Reserve to maintain high interest rates or even delay rate cuts.
Triple Headwinds: The Underlying Logic Behind Gold’s Short-Term Pressure
This round of gold price declines is not the result of a single factor. Instead, it’s the combined effect of a stronger US dollar, surging US Treasury yields, and rising expectations for higher interest rates.
Rising real interest rates and a stronger dollar are the main forces suppressing gold prices. Gold itself does not yield interest, so higher Treasury yields directly increase the opportunity cost of holding gold. On May 19, the yield on 10-year US Treasuries soared to 4.687%, the highest since January 2025. The 30-year long bond yield climbed to 5.197%, a 19-year high. At the same time, the US Dollar Index rose to 99.30, marking a six-week high. The sharp upward shift in the long end of the US yield curve has prompted capital to flow back into fixed-income assets, significantly reducing gold’s investment appeal.
A sudden shift in monetary policy expectations has further weighed on gold. In April, US CPI rose 3.8% year-over-year, and core CPI rose 2.8%, both exceeding market expectations. PPI surged 6.0% year-over-year, the highest since December 2022. These figures have heightened concerns about persistent inflation, directly cooling market expectations for Fed rate cuts this year. The money market has almost completely priced out rate cuts for 2026 and is now beginning to price in the possibility of rate hikes in 2027. According to CME FedWatch data, the probability of a 25-basis-point Fed rate hike in December climbed to 49.5% at one point.
Traditional safe-haven logic is failing under the current macro framework. Supply chain risks from Middle East conflict have further fueled global inflation worries. Stubbornly high inflation, in turn, is forcing the Fed to maintain its hawkish stance, creating a negative feedback loop. In today’s market, geopolitical risks have morphed into amplifiers of inflation expectations.
Diverging Views from Investment Banks: Short-Term Pressure vs. Long-Term Optimism
As gold prices tumble, major international investment banks are split in their outlooks.
In the short term, several institutions have lowered their gold price forecasts. JPMorgan has cut its 2026 average price forecast for gold from $5,708 to $5,243, citing weakening short-term demand. Citi has openly expressed a bearish short-term outlook, predicting gold could touch $4,300 within the next three months. UBS, citing persistently high Treasury yields and a strong dollar, has revised its year-end 2026 gold forecast down from $5,900 to $5,500.
However, the foundation for a long-term gold bull market remains intact. Bank of America still expects gold to reach $6,000 within the next 12 months, highlighting ongoing central bank gold purchases as a key driver for long-term price appreciation. Nanhua Futures believes that if high oil prices persist, stagflation trades could become the next major narrative for precious metals, and that pullbacks should be seen as medium- to long-term buying opportunities. The factors supporting gold’s medium- and long-term trajectory remain robust: global central banks continue to increase gold reserves, with net purchases reaching 244 tons in Q1—well above the five-year average. As a strategic asset to hedge against "fragmentation of the international order" and "sovereign currency credit risk," gold’s allocation value remains solid.
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Market Outlook and Trading Strategy Recommendations
In the short term, as long as oil prices remain high and US Treasury yields stay elevated, gold will continue to face downward pressure. However, in the medium to long term, the structural bull market for gold remains intact. Persistently high global debt levels, a widening US fiscal deficit, and ongoing central bank diversification of reserves continue to provide fundamental support.
From a technical perspective, gold is currently trading in a wide range between $4,550 and $4,600, with key support at $4,380–$4,400. If gold breaks above $4,600, it could target the $4,640–$4,660 range. For investors, keep an eye on the core PCE inflation data to be released on May 28—the Fed’s preferred inflation gauge. If the data exceeds expectations, rate hike expectations will intensify; if a turning point emerges, gold could see a sustained recovery.
Summary
Gold’s drop below $4,500 is fundamentally the result of a triple whammy: rising real interest rates, surging Treasury yields, and heightened rate hike expectations. In the current macro narrative of "high inflation and high interest rates," inflation expectations have overshadowed the traditional safe-haven logic. In the short term, high oil prices and tightening policy expectations will continue to weigh on gold. But from a medium- to long-term perspective, underlying bullish factors—such as ongoing central bank gold purchases, de-dollarization trends, and high global debt levels—remain intact.
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