Gold’s traditional relationship with geopolitical conflicts is changing, with inflation, interest rates and monetary policy emerging more important drivers of bullion prices, according to a report.
In its H1 2026 Precious Metals Report, Motilal Oswal Financial Services Ltd (MOFSL) said the first half of the year showed that geopolitical risks alone may not be enough to sustain a gold rally as investors increasingly assessed conflicts through their impact on inflation and interest rates.
“H1 2026 demonstrated that the relationship between war and gold has become increasingly conditional,” Navneet Damani, Head of Research, Commodities at MOFSL, said.
Markets increasingly focused less on the geopolitical headlines themselves and more on their impact on inflation, real interest rates and monetary policy expectations, he added.
“Rising bond yields emerged as the key headwind for gold, outweighing traditional safe-haven demand despite elevated geopolitical tensions,” Damani said.
Gold started the year strongly, supported by policy uncertainty, ETF inflows, central-bank buying and expectations of interest rate cuts by the US Federal Reserve.
However, the market narrative shifted as tariffs began feeding into production costs and inflation expectations, lifting the prospect of higher-for-longer interest rates and pushing real Treasury yields and the dollar higher, according to the report.
It also highlighted that the US-Iran conflict provided another example of the changing dynamic. The initial escalation supported bullion demand, higher oil prices raised inflation concerns and reduced expectations of monetary policy easing, limiting gains in gold and contributing to a correction.
“Tariffs have evolved from a growth risk into an inflationary force,” the report said.
Looking ahead, the report expects inflation trends, Federal Reserve communication and global liquidity to remain key drivers of gold and silver, alongside central bank buying, exchange traded funds (ETFs) flows and speculative positioning.
“Inflation trajectory, Fed communication, global liquidity conditions, central bank demand and investment flows are expected to remain the key variables for gold and silver during H2 2026.
“While near-term volatility may persist, structural demand continues to support the long-term outlook for precious metals,” Manav Modi, Commodities Analyst at MOFSL, said.
China will remain an important variable through reserve diversification, central bank purchases and sustained industrial demand, particularly for silver. Gradual policy normalisation by the Bank of Japan could, however, tighten global liquidity, the report noted.
MOFSL expects gold to retain medium-term strength but sees scope for a 6-8 per cent correction from current levels before a potential move towards $4,800 per ounce in the overseas markets and subsequently more than $5,500 over 12-15 months horizon.
On the domestic front, the report identifies accumulation levels assuming a USD/INR rate of 95.5, with medium-term targets of ₹1.68 lakh per 10 grams followed by ₹1.93 lakh per 10 grams.
The report further stated that gold may remain range-bound or correct further until interest rates decline. However, central bank demand, fiscal risks and currency-debasement concerns support the long-term outlook.
Published on August 10, 2026
