Gold has pulled back after one of its strongest multi-year rallies in modern history. Following gains of 15% in 2023, 26% in 2024 and 67% in 2025,[1] prices have retraced as markets rapidly reassessed the interest rate outlook. Stuart O’Reilly from The Royal Mint shares his outlook for gold.
The catalyst has been the conflict with Iran and its potential inflationary consequences. With Kevin Warsh now leading the Federal Reserve, investors have begun pricing in the possibility of the first US interest rate hikes since July 2023. The ECB has already raised rates by 25 basis points.
Higher interest rates can weigh on gold by increasing the opportunity cost of holding a non-yielding asset. Yet history suggests this relationship is rarely straightforward. Gold has often performed well during rate-hiking cycles when tightening reflects inflation, fiscal pressure or geopolitical risk rather than strong growth. Today’s environment contains all three.
If monetary policy is a short-term headwind, the longer-term drivers of gold remain intact.
Political uncertainty looks set to intensify over the next eighteen months. Current polling points towards the Democrats regaining the House while the Senate looks extremely close. Whether Congress becomes divided or closely contested, investors may begin to focus on legislative gridlock, tensions between the White House and Congress, and the US debt ceiling, which is due to be hit in 2027.[2] These developments follow Moody’s downgrade of the US government’s credit rating last year and unfold as President Trump seeks to cement his legacy while 2028 candidates begin defining their own.
Political change is not confined to the United States. A new Prime Minister in the UK may wish to reflect a fresh policy agenda in the 2026 Budget. Significant policy shifts may prompt investors to reassess portfolio allocations, particularly when uncertainty surrounds taxation, government borrowing and growth.
Geopolitical risks also appear unlikely to disappear, even if tensions in the Gulf ease. The World Economic Forum’s 2026 Global Risks Report found that 68% of respondents expect a fragmented multipolar world to define the coming decade, while 57% anticipate a more turbulent geopolitical environment.[3] This is no longer merely a geopolitical backdrop; it is increasingly the standard operating environment. Such conditions have historically reinforced demand for hard assets perceived as stores of value.
Meanwhile, perhaps the strongest endorsement of gold continues to come from central banks. Collectively, they now own more gold than any other reserve asset, surpassing US Treasuries for the first time this year (though broader dollar assets remain dominant). Headlines around Turkish sales and Polish profit-taking obscure the trend. Turkey has resumed purchases after intervening to support its currency, while Poland rejected proposals to take some profits to fund defence spending.
More importantly, the latest central bank survey shows record optimism: 84% expect gold to account for a larger share of reserves within five years, while 45% expect to increase their own holdings within twelve months.[4] Crisis performance, hedging against inflation, and diversification remain key motivations. Rather than reacting to events, central banks appear to be strategically repositioning for a less predictable world.
Finally, concentration risk within equity markets continues to warrant attention. AI stocks have driven an extraordinary share of growth, but we’ve seen some recent turbulence. Concerns about valuations and speculative behaviour have been raised by the Bank of England, ECB, BIS, IMF, JPMorgan, Goldman Sachs, the CEO of Alphabet, the CEO of OpenAI, and major hedge fund managers, among others.
While AI’s long-term potential remains substantial, investors may increasingly consider concentration risk and reevaluate their approach to diversification and uncorrelated assets.
Gold’s current weakness may therefore reflect shifting rate expectations rather than any deterioration in its investment case. The structural themes supporting gold, including geopolitical fragmentation, fiscal expansion, central bank diversification and portfolio risk, remain firmly in place and appear to be strengthening.
[1] LBMA Gold Price PM (USD), calendar-year returns calculated using final LBMA PM prices of the year.
[2] Bipartisan Policy Center, “When Will We Reach the Debt Limit (Again)?”, June 2026. https://bipartisanpolicy.org/article/when-will-we-reach-the-debt-limit-again/
[3] World Economic Forum, Global Risks Report 2026, January 2026.
https://reports.weforum.org/docs/WEF_Global_Risks_Report_2026.pdf
[4] World Gold Council, Central Banks Gold Reserves Survey 2026, June 2026.
https://www.gold.org/goldhub/research/central-bank-gold-reserves-survey-2026
