Near-Term Headwinds Drive Forecast Cuts
HSBC has revised its near-term gold price forecasts downward, reflecting a challenging environment for the precious metal. The bank’s chief precious metals analyst, James Steel, noted that gold has experienced significant volatility this year. Prices reached an all-time high of $5,450 per ounce on January 30 before declining sharply to $3,942 by the end of June.
This downturn was triggered by a combination of factors, including the Iran conflict, rising oil prices, higher bond yields, and a stronger US dollar. Although a late-summer recovery occurred as investor interest returned, it faded after the Federal Reserve delivered a rate hike in September, leading markets to price in further monetary tightening. These forces—rising oil, a firm dollar, and expectations of additional rate increases—continue to keep gold under pressure in the immediate term.
Long-Term Outlook Remains Constructive
Despite the near-term challenges, HSBC is not abandoning its longer-term positive stance on gold. Steel stated that if the pace of Federal Reserve rate hikes does not meet the market’s current hawkish expectations, gold may recalibrate higher in 2027. The bank’s view is that the current pressure is temporary and that structural supports remain intact.
A primary driver of this resilience is steady buying by central banks. Official sector purchases have remained consistent, driven by long-term diversification strategies and geopolitical concerns. HSBC expects this demand to continue, providing a floor under prices even if speculative interest wanes.
Institutional and Physical Demand Dynamics
Institutional demand for large bars has also held up reasonably well. HSBC points to regulatory changes in India and China that now permit financial institutions to purchase more gold. This is supported by soft property and equity markets in both countries, which may drive investors toward gold as an alternative asset. Additionally, the heavy ETF selling seen earlier in the year is beginning to reverse as investors return to gold’s traditional role as a safe haven and portfolio diversifier.
However, physical demand remains the weaker link in the chain. High prices have significantly reduced jewelry buying, and HSBC sees little chance of a quick recovery in this segment while inflation persists and household incomes remain tight. Coin demand is similarly soft, though the bank suggests it may be nearing a bottom. If investor flows slow again, the combination of weak consumer demand and gradually rising supply could weigh more visibly on prices.
Supply and Macro Factors
Supply-side constraints are also notable. Mine output is expected to rise modestly in 2026 and 2027, but increases are constrained by falling ore grades and the difficulty of developing new projects. Recycling has been less responsive to high prices than in past cycles, although HSBC expects it to pick up later this year and into 2027.
Fiscal and geopolitical factors add complexity. Larger government deficits are negative for gold in the short run because they push yields higher. However, over a longer horizon, HSBC views these deficits as potentially supportive due to the economic strain they can create. Geopolitical risks remain a background positive for the metal.