7. April 2026
Gold has experienced a noticeable setback in recent weeks, even though the macroeconomic environment could have provided support for the precious metal at first glance. Rising inflation and the burdens of the war with Iran could actually have suggested a stronger performance. In fact, gold has lost around 16% in value since the start of the Middle East conflict and has largely moved in tandem with risk assets over the past four weeks. As a result, the precious metal’s usual function as a geopolitical hedge initially remained in the background.
For the analysts at Merrill, however, this development is not an indication of fundamental market weakness. They see the recent correction primarily as a result of positioning effects, changed interest rate expectations, and dollar developments. In contrast, the structural factors that have supported gold in recent years and at times pushed the price well above $5,000 per ounce are still present. From this perspective, the long-term trend for gold remains upward.
Reference is also made to the exceptionally strong rally that preceded the setback. Since 2022, gold had risen sharply, driven primarily by sustained high purchases by central banks and a resurgence of interest from private investors. In January, it even surpassed the $5,400 per ounce mark. After such a strong movement within a short period, consolidation phases are historically not unusual for commodities. Exactly such a process currently seems to be playing out with gold.
Gold suffers in the short term from yields, the dollar, and profit-taking
In Merrill’s view, the recent decline in the price of gold is not explained by a deterioration in the fundamental demand base, but by several short-term obstacles. Profit-taking after the sharp rise of recent years played an important role. Market positioning had expanded increasingly after the historic rally. When risk aversion increased with the outbreak of the war, market participants apparently also used gold to release liquidity.
This effect may have been reinforced by unusually low cash holdings among institutional investors. These reserves had fallen to record lows in January. In such an environment, even a classic safe haven like gold can be sold in the short term if market participants need to meet capital requirements elsewhere. From Merrill’s perspective, the price movement therefore appears less like a loss of confidence in the precious metal and more like a technical reaction to the market structure.
In addition, there were higher yields on the bond market. According to the experts, rising energy prices have reignited concerns about inflation and thereby changed expectations for monetary policy. Hopes for early interest rate cuts have been pushed back. On the Fed Funds futures markets, a significant probability is now even being priced in that the US Federal Reserve’s next step could theoretically even be an interest rate hike. However, when real yields rise, the opportunity cost disadvantage of gold increases, as the metal itself yields no ongoing returns.
Merrill sees additional headwinds for gold in dollar strength
In addition to yields, Merrill cites the stronger US dollar as a major burdening factor. Since the start of the conflict, the US currency has strengthened as investors have sought their own safe haven. The dollar benefited from its classic protective function during uncertain market phases. This is usually problematic for gold because the precious metal has historically often trended inversely to the development of the dollar exchange rate.
This relationship also stems from gold’s role as a medium of exchange and store of value. For many years, the metal was viewed as an alternative to the dollar. If the US currency gains significant strength, the relative attractiveness of gold often declines. According to Merrill’s assessment, this exact pattern has put additional pressure on the price in recent weeks.
It is striking that, despite geopolitical tensions, gold did not behave as many investors would expect. Normally, the precious metal benefits in uncertain times from its function as a hedging instrument. In the current market environment, however, this role was overshadowed by the aforementioned factors. This led to a development that appears contradictory at first glance: rising uncertainty, but falling gold prices.
Structural drivers for gold remain in place according to Merrill
Despite these short-term burdens, Merrill remains constructive on gold in the long term. It is emphasized that the structural forces that have supported the precious metal in recent years remain intact. Among these, analysts primarily include high fiscal deficits, which continue to cause concern. Furthermore, in their view, the US dollar is likely to resume its more moderate trend once current geopolitical tensions subside.
Another point concerns central banks. According to Merrill’s assessment, they would have little incentive to end their diversification of reserve assets. These very purchases have significantly supported gold since 2022. When the uncertainty surrounding the Middle East conflict subsides, these fundamental demand drivers should once again be more strongly reflected in the price.
For Merrill, this results in a clear picture: the current setback does not change the long-term classification of the precious metal. Rather, the correction appears to be a phase of consolidation following an extraordinary price increase. From the firm’s perspective, gold remains a strategic diversifier in balanced portfolios. The short-term headwinds from yields, dollar strength, and profit-taking are real, but they do not change the fact that the overarching arguments for the precious metal remain valid.
Source：https://goldinvest.de/en/merrill-remains-bullish-gold-still-has-significant-upside-potential/
