Despite Strong Dollar and High Yields, HSBC Analysts See Gold Supported by ETF Inflows

Despite the continued constraints on gold price growth from US Treasury yields and a strengthening dollar, rising demand for diversification, central bank purchases, and ETF inflows should support further price increases for this precious metal by the end of 2026, according to HSBC forecasts. HSBC analysts predict gold growth.

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HSBC Global Chief Investment Officer Willem Sels and Head of Asset Management Analytics Lucia Ku wrote: Gold did not rise during the Middle East conflict and largely moved in tandem with equities. Their analysis indicates that US bond yields are the primary driver of gold prices. They believe that in the short term, gold may remain within a certain range amid high real yields and a strong dollar. However, portfolio diversification demand, central bank purchases, and steady ETF inflows should support gold prices in the medium term.

They continue to view gold as an effective diversification tool against broader portfolio risks. Sels and Ku stated that their analysis shows US Treasury yields are currently the main factor determining gold price dynamics. When yields rise, the opportunity cost of holding a non-yielding asset increases, pressuring gold prices. Moreover, gold proved less effective as a hedge against equity market risks in 2026, as it largely moved in sync with stocks.

HSBC believes that in the short term, gold is likely to stay within a certain range due to high real yields and a strong dollar. However, portfolio diversification demand, central bank purchases, and steady ETF inflows continue to support their optimistic view on gold and its role as a diversifier against broader portfolio risks. They expect further gold price increases by year-end. On May 11, James Steel, chief precious metals analyst at HSBC, stated that gold behaved exactly as expected throughout the Iran conflict. Chinese demand was robust.

The Shanghai Gold Exchange premium—the difference between domestic Chinese prices and global prices—is around $20, indicating strong domestic demand in China, primarily from institutional investors. Interestingly, demand for jewelry, coins, and small bars declined while demand for large bars increased due to regulatory reforms in China and India. Chinese insurance companies are now allowed to accumulate precious metals, as are asset managers in India. Steel was asked about his conclusions after observing gold’s peak near $5,400 per ounce in late January and its subsequent drop amid the Middle East conflict. He believes the rise was somewhat excessive, with much money coming into the market that had been on the sidelines. Market overvaluation is arguable, especially based on CFTC data.

Many critics say gold, which fell after strikes on Iran and rising oil prices, is no longer a safe haven, that it has failed. Steel argues the opposite: as oil prices rose, inflation fears resurfaced, bond yields increased, the dollar strengthened, and equities fell. Cash was needed in such an environment, and gold provides liquidity.

There was liquidation in the gold market, mainly as a reaction to the financial market. In a sense, gold was an insurance policy, and that policy was being cashed in. Steel was also asked about the historical relationship between gold and oil prices. He recalls times when the correlation was positive. In the 1970s, gold had a positive correlation with oil. The same held in the 1980s. This correlation broke in the 1990s as oil became less significant to the global economy. Currently, the correlation is only around 0.15, sometimes below zero, and now it is negative.

Finally, Steel was asked if he views gold as one of several alternative assets or as a standalone asset. He thinks it is an alternative asset—unique as a hard asset with high liquidity. It does not correlate with stocks like Apple or Nvidia in the long term. Unlike Canadian farmland, another hard asset, gold can be quickly sold. That is its appeal: both a hard asset and a highly liquid, actively traded one. Many asset managers who never included gold are now doing so, seeking alternatives.

On April 2, Sels and Ku stated that despite gold’s recent decline, increased cross-asset correlations make the precious metal more valuable than ever as a portfolio diversification tool, and they remain optimistic about gold’s long-term prospects.

They confirmed their positive gold forecast for the next six months and affirmed the bank’s position. Inflation concerns have also led to interest rate volatility and revisions in monetary policy expectations. Policymakers will likely maintain current rates for some time before easing later. They continue to invest in investment-grade credit and local currency emerging market bonds for yield.

However, with increased cross-asset correlations, they use gold and alternatives to enhance diversification. Despite the recent correction, they maintain a medium- to long-term optimistic view on gold due to its diversification benefits and safe-haven demand. Analysts added that they still expect recent headwinds for gold to be temporary, as fundamentals remain supportive. Gold continues to serve as an attractive portfolio diversifier amid geopolitical uncertainty and central bank purchases. HSBC has firmly maintained its positive outlook on the precious metal throughout the recent correction.

On March 30, HSBC Asset Management analysts said that in 2026 gold is behaving more like a risk asset, falling sharply amidst heightened geopolitical tensions and a stronger dollar, but de-dollarization trends still make it a good long-term investment. Gold’s price movements since the start of the Iran conflict have exceeded expectations. The traditional strategy suggested rising geopolitical tensions and economic uncertainty would naturally boost gold prices, repeating last year’s “Liberation Day” episode and providing an impressive two-year rally. Instead, analysts noted the opposite: gold has lost 15% since March.

The strengthening US dollar has certainly been a headwind, deterring non-US buyers, while a hawkish repricing of interest rates increased the opportunity cost of holding a non-yielding asset. However, gold weathered similar spikes in the dollar and interest rates throughout 2022, weakening this traditional thesis. HSBC believes that in 2026 gold is effectively behaving as a risk asset.

Ownership has shifted towards retail and other leveraged buyers, many forced to liquidate during periods of market instability. Gold still represents a decent long-term investment opportunity, especially amid ongoing global de-dollarization. However, recent volatility serves as a stark reminder: effective portfolio diversification requires a broad approach.