After a volatile but strong start to 2026, gold prices have been consolidating around US$4,400-US$4,700/oz amid competing macro forces tied to the US/Iran war and higher oil prices, according to State Street Investment Management (SSIM), which says APAC is emerging as a key driver of incremental demand.
“Regulatory and market initiatives in APAC are broadening participation across retail, institutional, and official sectors, creating more structural demand channels alongside traditional macro tailwinds,” the firm said in its gold 2026 midyear outlook.
Year-to-date, APAC-domiciled gold ETF inflows have reached US$16.2 billion (100t), accounting for 82 per cent of global gold ETF net inflows.
“We expect these markets to drive structural demand in the years ahead.”
Globally, gold bar and coin demand in Q1 2026 – inclusive of the first month of the Iran conflict – rose 42 per cent year-over-year to 474 tonnes (t), the second-highest quarter on record.
SSIM is forecasting that the precious metal could approach all-time highs around US$5,500/oz by the end of 2026 in a base case scenario.
Over the medium to longer term, bullion demand may also benefit structurally from geopolitical fragmentation linked to the Iran war.
“Geopolitical fragmentation could accelerate, supporting bullion consumption among private entities and central banks that seek alternatives to USD and continue to onshore hard assets.”
At the same time, SSIM notes that war-related spending in the US and energy subsidies across emerging market economies are likely to widen fiscal deficits and debt loads, reinforcing inflation risks and supporting gold as a hedge against fiat debasement.
In the near term, however, the firm warns gold may struggle to sustain momentum above US$5,000/oz, as higher energy prices lift nominal and real yields while supporting a stronger US dollar, particularly as the Gulf Coast becomes a marginal petroleum exporter in the Atlantic Basin.
“Such macro forces increase the opportunity cost of holding gold, at least temporarily, and can weaken gold pricing through denomination and trade effects.”
Despite a US-Iran deal now confirmed and the Strait of Hormuz reopening, SSIM says gold demand could remain supported by lingering structural impacts from the conflict.
Beyond geopolitics, SSIM identified four key structural forces underpinning the ongoing gold bull cycle, which it expects to remain intact through H2 2026. These included demand for monetary hedges and debasement protection, elevated stock/bond correlations, strong global physical demand, and the view that gold can be “over-bought” at times but not “over owned”.
Gold’s role as a portfolio diversifier is also expected to strengthen as investors reassess traditional portfolio constructions such as 60/40 or 70/30 allocations.
“Despite the historic ~150 per cent rally in the gold price from 2023 to 2026, global gold fund holdings as a percentage of worldwide mutual fund and ETF assets stood at 1 per cent at the end of April – well-below the 3-10 per cent strategic target allocation we find suitable for most portfolios,” the report noted.
SSIM believes this leaves significant room for further allocation increases into 2026-2027.
“Investors may look to add strategic gold holdings as the metal has historically shown low correlation to traditional assets and has a stable price volatility profile compared to other alt-fiat proxies like silver or Bitcoin. Strategic gold allocations may also increase for duration or global growth hedges.”
While Western financial demand for gold may fluctuate with risk sentiment and Federal Reserve policy shifts, SSIM emphasised that gold remains a physical asset supported by diverse global demand sources, including Chinese retail buyers and central banks.
“Strong physical investment demand for gold is preferable for bullion bulls, as it tends to be more price inelastic vis-à-vis jewelry consumption. As Trump 2.0 policy potentially increases geopolitical fragmentation, gold might benefit as a “neutral” store of value.”
Energy markets are also expected to play a key role in shaping gold’s trajectory through 2026.
“A normalization of ICE Brent trading to US$80/bbl could push gold to US$5,000/oz via the US Federal Reserve (Fed) expectations and USD channel. On the other hand, triple-digit oil prices and the tail risk of US$150/bbl crude could be a headwind for gold, in our view, prompting gold to test US$4,000/oz support levels.”
Looking ahead, SSIM also flagged potential risks from a more hawkish Federal Reserve under incoming Chair Kevin Warsh.
“As for the very short-term, a key risk to gold would be a more hawkish Fed response to persistent inflation, particularly if resilient growth keeps real yields elevated for longer,” the report said.
“However, the more constructive backdrop for gold may be a stagflationary environment in which labor markets weaken while inflation pressures remain elevated through 2027. In that scenario, the Fed could face growing pressure to ease policy despite inflation remaining above target. On balance, that combination of weaker growth, sticky inflation, and eventual policy easing would likely be supportive of gold.”
SSIM concluded that while the environment remains tactically complex heading into H2 2026, strategic allocation to gold remains compelling.
“We believe investors will buy gold price dips and gold could hold support near $4,000/oz, even in a bear case scenario.”
