Gold's Geopolitical Ties Weaken as Inflation and Interest Rates Take Center Stage

The relationship between gold prices and geopolitical conflicts is evolving, according to Motilal Oswal Financial Services Ltd (MOFSL). In its H1 2026 Precious Metals Report, the company noted that gold's traditional connection with war is changing as investors increasingly focus on the impact of conflicts on inflation and interest rates.

Navneet Damani, Head of Research, Commodities at MOFSL, stated that 'H1 2026 demonstrated that the relationship between war and gold has become increasingly conditional.' Markets are now more concerned with the effects of geopolitical tensions on inflation, real interest rates, and monetary policy expectations.

The report highlighted that rising bond yields were a key headwind for gold, outweighing traditional safe-haven demand despite elevated geopolitical tensions. Gold started the year strongly due to policy uncertainty, ETF inflows, central-bank buying, and expectations of interest rate cuts by the US Federal Reserve. However, as tariffs began feeding into production costs and inflation expectations rose, the prospect of higher-for-longer interest rates and increased real Treasury yields pushed gold prices lower.

Looking ahead, MOFSL expects inflation trends, Federal Reserve communication, and global liquidity to remain key drivers of gold and silver prices, alongside central bank buying, ETF flows, and speculative positioning. The company predicts that gold may retain medium-term strength but sees scope for a 6-8% correction from current levels before potentially moving towards $4,800 per ounce in overseas markets.