After an exceptional year of returns for the yellow metal in 2025, the wind has been taken out of the sails of gold so far in 2026.
According to data from FE fundinfo, the S&P GSCI Gold spot is down 2.3% year-to-date, a far cry from its 22.9% total return by the start of March. It’s even further away from its remarkable 2025 performance, when the precious metal soared 51.3%.
As the war between the US and Iran continued, the commodity came under significant pressure, with intra-day price swings of $900 per ounce at maximum, according to Fairview Investing’s Ben Yearsley earlier this year.
See also: Fairview’s Yearsley: Has gold’s allure disappeared as the Iran war rages?
Joseph Greif, investment director at Evelyn Partners, noted: “Gold encountered a ‘perfect storm’ after a strong two-year rally.”
It had been purchased so much that it was now technically overbought, taking just a year to rise over $4,000 per ounce, and just 78 days to rise above $5,000, he explained.
“When combined with a sudden shift in US interest rate expectations from cuts to hikes and central banks pausing their purchases, it meant marginal buyers were replaced with marginal sellers, which weighed on returns over the year,” he said.
Shaniel Ramjee, multi-asset manager at Pictet, agreed with Greif.
“Why hasn’t gold worked at the moment?” Ramjee asked. “One of the big reasons is that simply quite a lot of people bought it, and if it’s a bigger part of investors’ portfolios, then it can be bought and traded like any other asset.”
The Iran conflict added further pressure, as while geopolitical conflicts are usually a good time for the yellow metal, markets treating it as more inflationary led to a sell-off, according to Greif.
That said, for Pictet’s Ramjee, selling off during a crisis is exactly why investors buy gold to begin with.
“In a situation like we have today, where gold is thought of as your rainy-day asset – well, there are many countries that need their rainy-day asset right now,” he told Portfolio Adviser.
See also: Quilter: 69% of fund groups still see gold as a safe haven
“Think of countries in the Middle East or Southeast Asia that need to tap into their rainy-day funds to pay for, say, higher oil prices or higher imports; gold is serving that purpose,” he added.
On top of this, many of the structural drivers that drove the initial two-year rally in the precious metal remain in place, experts argued.
Al Chu, commodities manager at Man Group, said: “Bulls will point to the worst-case scenario being behind, and say investors should look past interim inflation prints.
“Longer term bulls will also point to the potential for continued longer term decline in the US dollar and de-dollarisation.”
Indeed, he noted the Iran conflict is leading to renewed interest among sovereign entities to price crude oil outside of dollars, and gold is a beneficiary of that.
Pictet’s Ramjee added: “Gold, we think, remains a core asset, but from our point of view, we think of it as a currency.”
Emerging market central banks have been major buyers of gold in recent years, Ramjee noted. With the potential for long-term fiscal debasement, there is support for viewing gold as more of a currency, he said.
“In a world where we have currency debasement through higher inflation, higher fiscal spending, gold ultimately will work,” he said.
However, he warned investors need to view gold more dynamically and recognise that its value within portfolios can change based on the environment.
For this reason, while the team have been long-term proponents of holding gold within a diversified portfolio, they were lowly weighted during the Iran conflict, Ramjee said.
Evelyn’s Greif added: “Despite gold’s aesthetic, psychological and symbolic character traits, it should not be considered a perfect portfolio hedge.”
Instead, investors should view it as an “imperfect insurance” that can be volatile but can still earn its place if it behaves differently from other assets at important times.
During the recent geopolitical crisis, the yellow metal fell alongside other diversifiers, but Greif explained this was not unusual behaviour when interest rates were a major concern.
However, “short-term discomfort should not override the long-term rationale for holding it”.
Indeed, historically it has been a solid diversifier during previous major market downturns, he explained.
For example, during the GFC gold rose almost 40%, while stocks slid about 50%, according to data from the ICE benchmarks and World Gold Council.
“It is not a perfect short-term protection tool, and it should not be expected to rise during every geopolitical shock.
“The long-term rationale for owning gold, namely being a store of value in times of uncertainty, having multiple sources of demand and the diversifying attributes from traditional equities and bonds remains intact,” Greif concluded.
