Gold Remains Valid Target for Asset Diversification Despite Tough Macro Backdrop

Oversea-Chinese Banking Corporation (OCBC) stated in its latest report that gold remains a valid target for portfolio diversification in the medium term, but warned that challenging macroeconomic conditions could put pressure on the metal's prices. The bank lowered its end-2026 forecast for spot gold to $4,360 per ounce from $5,100, indicating a more cautious near-term outlook.

OCBC analysts cited several key reasons for this downward revision, including higher real yields, a stronger U.S. dollar, increasingly hawkish expectations regarding the Federal Reserve's (Fed) monetary policy, and a slowdown in demand from exchange-traded funds (ETFs). The bank's earlier peak forecast of $5,600 in January 2026 was based on assumptions that the Fed would implement rate cuts, the U.S. dollar would weaken, and investor demand would remain robust. However, recent developments have shown a reversal of these assumptions.

This shift in the macroeconomic outlook has contributed to recent volatility in gold prices. Rising bond yields, in particular, reduce the attractiveness of non-yielding assets like gold, while a strong dollar also pressures gold's value in international markets. OCBC suggests that any rallies in gold prices in the near term are likely to be short-lived, and prices may consolidate below previous highs. Gold was trading around $4,023 this morning.

In the broader economic context, global inflationary pressures and central banks' responses continue to shape the gold market. The Fed's commitment to combating inflation, in particular, leads to higher interest rates, making it difficult for gold to appreciate significantly. Nevertheless, OCBC emphasizes that ongoing central bank gold purchases, geopolitical uncertainties, and fiscal concerns continue to underpin structural demand for gold in the medium term.

OCBC analysts maintain their constructive stance on gold's medium-term outlook, but stress that an improvement in the macroeconomic environment is necessary for a more durable rebound. An easing of real yields, a softer U.S. dollar, or a clearer unwinding of hawkish Fed expectations could create a more favorable backdrop for gold prices. The bank expects gold to average $4,180 per ounce in September 2026, gradually rising to $4,820 by September 2027. These forecasts indicate that despite short-term challenges, gold retains its long-term strategic importance.