Inflation Surpasses Geopolitics as Gold's Primary Driver
Motilal Oswal Financial Services Ltd.'s (MOFSL) recent report on precious metals highlights a significant shift in how global markets respond to macroeconomic developments. The report, which covers the first half of 2026, notes that inflation and monetary policy have become the primary drivers of gold prices, overtaking geopolitical conflicts.
The report divides H1 2026 into three phases: the first quarter was characterized by policy uncertainty and safe-haven buying, supporting gold prices; in April and May, inflation concerns gained prominence as tariffs translated into higher production costs and sticky inflation reduced expectations of near-term rate cuts; and by June, despite heightened geopolitical tensions, markets focused on the inflationary consequences of higher oil prices and their impact on monetary policy.
The report's author, Navneet Damani, Head of Research, Commodities at MOFSL, notes that 'H1 2026 demonstrated that the relationship between war and gold has become increasingly conditional.' He adds, 'Rather than reacting solely to geopolitical headlines, markets focused on how these events influenced inflation, real interest rates, and monetary policy expectations.'
The report also highlights several structural themes that shaped precious metals during H1 2026. Tariffs transitioned from being viewed primarily as a growth risk to becoming a key source of inflation; rising US fiscal deficits provided long-term support for gold; and the Bank of Japan's gradual policy normalization tightened global liquidity.