Gold’s slide from its January peak of $5,626.80 an ounce to the current $4,239.70 — a drop of roughly 25% — has left the metal oversold according to its relative strength index, which sits at 36.1. But behind that correction lies a structural story that is far more nuanced than a simple rate-driven selloff. While monetary policy punishes bullion in the short term, the composition of global gold demand is undergoing its most significant shift in decades.
For the first time, physical investment in bars and coins is expected to overtake jewellery as the largest single source of gold demand in 2026. The jewellery sector has been hammered by high prices: global production slumped 19% last year to a five-year low and the market anticipates another 11% decline in 2026. Consumers are trading down to lighter pieces and lower carat grades, a direct consequence of a metal that has climbed beyond the budgets of many traditional buyers.
Investment appetite, by contrast, continues to swell. Total global gold demand reached a record 1,231 tonnes in the first quarter of 2026, representing roughly $193 billion. The technology sector added its own modest contribution, with demand rising 1% on the back of growing use of artificial intelligence components.
Central banks broaden their footprint
Central banks have been the bedrock of gold’s fundamentals. Net purchases in Q1 hit an estimated 244 tonnes, above both the previous quarter and the five-year average. Poland once again led the charge, buying 31 tonnes in the three-month period and lifting its total holdings to 582 tonnes, with a stated target of 700 tonnes.
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More telling than the volume is the expanding roster of buyers. Central banks from Guatemala, Indonesia and Malaysia have entered the market for the first time in years — or ever. That broadening of the institutional base suggests a long-term diversification trend that goes beyond the usual suspects. The World Gold Council forecasts full-year purchases of 700 to 900 tonnes.
Goldman Sachs, which revised its tracking model in May after concluding it had underestimated central bank buying since August 2025, noted that January alone saw roughly 66 tonnes of official-sector purchases. The bank now expects monthly average purchases of 60 tonnes in the second half of the year.
China presents a two-sided picture. The discount of local prices to the international benchmark has narrowed sharply, yet private buyers remain on the sidelines waiting for cheaper entry points. The People’s Bank of China, however, has increased its gold reserves for 18 consecutive months — a signal that sovereign appetite remains undimmed.
Supply constraints intensify the squeeze
Despite the record demand, total gold supply grew by only 2% in the first quarter. Mine production is projected to reach 3,907 tonnes in 2026 — a substantial number, but one that looks modest against the scale of buying pressure. Meanwhile, all-in sustaining costs climbed 12% last year to $1,552 an ounce. Higher prices have incentivised more recycling of scrap gold, but that alone is insufficient to close the structural supply gap.
The rate headwind that refuses to fade
The fundamental support from central banks and shifting demand patterns is colliding with an increasingly hostile macro environment. Two rate signals within days of each other have weighed on the yellow metal.
The European Central Bank raised its deposit rate to 2.25% on 11 June, the first increase in nearly three years, citing the inflationary impact of the US-Iran conflict. A day earlier, the US consumer price index showed inflation accelerating to 4.2% in May — the highest reading in more than three years — driven by a 23.5% annual surge in energy costs.
Normally, such inflation would burnish gold’s appeal as a store of value. This time the mechanism has flipped. Markets are now pricing a 43% probability that the Federal Reserve will deliver a rate hike by December, taking the fed funds rate to between 3.75% and 4.00%. Rising real yields and a stronger dollar are punishing the non-yielding metal. Goldman Sachs has pushed its forecast for any rate cut entirely into 2027, seeing no easing at all this year.
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All eyes turn to the Federal Open Market Committee meeting on 16-17 June. The CME FedWatch tool puts the chance of a pause at 97.1%, so the rate decision itself is a foregone conclusion. The real market mover will be the updated dot plot. If policymakers shift the first projected rate cut from 2026 to 2027, gold could face additional pressure.
Goldman outlines four conditions that would need to be met before the Fed can ease: a dissipation of tariff turbulence, a cooling of oil-price pressures from the Iran war, normalisation of AI-related demand, and core PCE inflation falling back toward 2%. None of those conditions currently hold.
Where gold goes from here
Oxford Economics believes May may have marked the inflation peak for 2026, with price pressures expected to fade through the second half of the year. If that assessment proves correct, it could recalibrate the Fed’s policy path and become a decisive turning point for gold.
J.P. Morgan maintains a bullish medium-term stance, citing the structural diversification trend among central banks. Its year-end target of $6,000 is explicitly conditional on geopolitical de-escalation and a loosening of Fed policy — two variables that remain deeply uncertain. For now, gold sits at the intersection of record institutional buying and a monetary policy regime that shows no signs of relenting.
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Gold Stock: New Analysis – 14 June
Fresh Gold information released. What’s the impact for investors? Our latest independent report examines recent figures and market trends.
