Hawkish Fed Fails to Dampen Central Bank Gold Buying

In a surprising twist, central banks have been buying gold at an accelerated pace in 2026 despite a hawkish Federal Reserve under Chair Kevin Warsh. This development challenges the conventional assumption that geopolitical conflict is bullish for bullion.

The key driver of this phenomenon is the relationship between real yields and gold prices. As interest rate expectations rise, the appeal of non-yielding assets like gold declines. In 2026, each basis point increase in the 10-year real yield reduced gold prices by approximately $20 per ounce, according to J.P. Morgan's analysis.

The Fed's shift toward data-dependency under Warsh has led to a repricing of interest rate expectations, pushing up real yields and reducing gold's appeal. This transmission mechanism has been the dominant force shaping gold's trajectory in 2026, outweighing geopolitical developments that would have typically generated strong safe-haven inflows.

The specific dynamic making 2026 so unusual is that regional conflict is influencing gold indirectly through an energy-inflation-monetary policy transmission chain. Houthi strikes targeting Saudi Arabian refining and export infrastructure disrupted oil supply, driving up Brent crude prices above $100 per barrel in late July 2026.