GFN - LONDON: Gold’s retreat from January’s record highs reflects one of the sharpest shifts in Federal Reserve expectations in years, but BNP Paribas believes the underlying bull market remains intact as physical demand and structural macroeconomic forces continue supporting the longer-term outlook.
BNP Paribas lowered its near-term gold forecasts after markets moved from expecting two to three Federal Reserve rate cuts to anticipating one rate hike during 2026. Rising inflation following the Middle East energy shock pushed Treasury yields and the U.S. dollar higher, creating a significant headwind for bullion prices.
“We stay bullish, however, in terms of the likely trajectory for gold prices from current levels.”
Gold fell from roughly $5,400 per ounce in early March to around $4,030 by mid-June before stabilizing near $4,200, supported by renewed physical buying and official-sector demand
BNP attributes much of gold’s correction to the market’s dramatic shift from expected rate cuts toward anticipated rate hikes.
The report argues that markets have recently focused more on the interest-rate implications of inflation than on inflation itself.
Higher energy prices normally support gold through inflation expectations. This year they instead strengthened expectations for tighter monetary policy, lifting the dollar while weighing on precious metals.
BNP nevertheless believes those monetary pressures represent one layer of the current market rather than the complete investment picture.
BNP expects gold’s long-standing inverse relationship with the U.S. dollar to reassert itself as the dollar gradually weakens into 2027.
Where the report becomes more constructive is on physical demand.
Chinese investors purchased a record 210.7 tonnes of bars and coins during the first quarter, while China’s gold imports rose 76% year-over-year through May. BNP argues that weak domestic property markets, low interest rates and persistent investor demand continue directing capital toward bullion.
ETF investors moved in the opposite direction.
Global gold ETFs reduced holdings by 78 tonnes year-to-date, reflecting profit-taking after January’s record prices. BNP concludes that Asian physical buying has more than offset those outflows.
“Chinese physical buying is more than offsetting the impact of ETF outflows.”
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