- Gold's correction maturing as de-risking pressures ease
- Energy market adaptation is reducing inflation risks from US-Iran conflict
- Asian demand is supporting gold near USD4,000/oz
- China's restrictions are improving the quality of gold demand
- Strategic 5-10% allocations enhance diversification and portfolio resilience
Gold has been under pressure from inflation and rate worries this year. Gold has faced persistent tactical pressure as inflation and rate risks have intensified. The first major sell-off came in January, when Warsh was cited as a potential successor to Powell as Fed Chair, prompting markets to price in the possibility of a more hawkish policy stance. The US-Iran conflict then drove energy prices higher, deepening inflation concerns and reinforcing the hawkish Fed narrative. Against this backdrop, gold prices have trended lower over the past six months.
However, we believe the correction is maturing. Gold may be turning a corner as the pressures behind the sell-off are becoming less acute. Firstly, adaptation in energy markets is helping to curb macro risks from inflation. Secondly, robust demand is emerging for gold at around the USD4,000/oz. level, especially from Asian investors. Thirdly, restrictions on leveraged retail gold trading in China have helped to stem some of the speculative flows within the asset class. Lastly, spiking long-end government bond yields suggest a potential revival of gold as a monetary debasement hedge.
Strategic role as portfolio risk diversifier remains intact. From a longer-term perspective, gold remains strategically important irrespective of the next price catalyst. Its value, from a portfolio construction perspective, comes from diversification, liquidity, and wealth preservation. Investors should therefore treat present price weakness as an opportunity to rebuild or maintain a strategic gold allocation in their portfolios rather than attempting to trade every change in the geopolitical and rates outlook.
Why we believe the worst is over for goldFour key reasons suggest that the worst of gold’s de-risking may be behind us: i) inflation risks are becoming more manageable; ii) Asian demand is supporting gold at the USD4,000/oz. level; iii) China’s new restrictions on leveraged retail gold trading are helping to curb speculative demand; and iv) rising long-end government bond yields point to renewed market concerns over fiscal sustainability, which are a tailwind for gold.
i) The world is getting better at managing war-driven inflation risk. Global energy markets remain sensitive to developments in the Middle East, but the impact of the US-Iran conflict is becoming less pronounced as supply chains adapt. Physical rerouting and infrastructure adaptation are helping to alleviate some supply disruptions: Saudi Arabia and the UAE, for example, are directing some exports through pipelines that bypass Hormuz. Buyers are also diversifying suppliers and adjusting refinery operations. Strategic and commercial stockpiles, alongside demand destruction and substitution, provide a second buffer. Finally, diplomatic and operational adjustments have significantly lowered the probability of worst-case outcomes from the US-Iran conflict. Accordingly, US headline and core inflation moderated in June and July, giving markets less reason to price in an extreme monetary-tightening response. This, in turn, reduces the intensity of gold’s rate-driven de-risking.
ii) USD4,000/oz. is emerging as an important demand zone for Asia. Gold has repeatedly attracted buying interest around the USD4,000/oz. level, especially from Asian investors. Intraday analysis suggests that the bulk of gold’s YTD movements have been linked to Asian and US trading hours; many of the pullbacks occurred during US hours, while rebounds tended to coincide with Asian hours. This supports the hypothesis that Asian buyers are generally more price-sensitive and often become more active after substantial corrections, providing an important price floor for the precious metal. But beyond that, it highlights the increasingly prominent role that Asian investors play in price discovery and direction for gold.
iii) China’s restrictions may improve the quality of gold demand. Chinese banks have suspended or significantly raised margin requirements for individual precious metals trading linked to the Shanghai Gold Exchange. This reduces retail leverage, which lowers the risk of repeated margin-driven liquidation. The withdrawal of leveraged retail capital does not automatically create new demand for gold, but it does reduce a key source of market fragility. Moving forward, gold will likely trade on a cleaner combination of physical buying, central bank demand, and long-term portfolio allocation.
iv) Revival of fiscal sustainability and debt concerns is gold positive. Long-end government bond yields across major economies recently hit multi-decade highs. The 30Y US Treasury yield recently crossed 5.34%, its highest since 2007. Yields on the 30Y German Bund, UK Gilt, and Japanese Government Bond have similarly risen to multi-year highs. This suggests that fiscal sustainability concerns, particularly around deficit spending and rising public debt, are returning to the fore for investors; that, in turn, could potentially revive the narrative of gold as a monetary debasement hedge.
Technical signs that de-risking is trailing off. There is no single metric that can confirm that de-risking is nearing its end. However, several data points collectively support this thesis. In addition to sustained closes above USD4,000/oz., we are seeing stabilisation in gold ETF outflows, reduced COMEX open interest without further sharp price declines, and less extreme speculative positioning in CFTC data. Together, these metrics support the intuition that forced sellers have largely exited the market and that the marginal buyer is regaining influence.
Gold's function without the portfolioNo need to reinvent the wheel. Investors often look for a new catalyst for gold: de-dollarisation, central bank buying, fiscal deficits, monetary debasement, geopolitical fragmentation, tariffs, inflation, falling rates, or weaker confidence in government debt. Many of these themes are valid, but no single factor consistently explains gold’s performance. Its relationships with inflation, rates, and the dollar shift over time, and treating them as rigid truths risks reducing a strategic asset to a sequence of short-term macro trades. Gold’s enduring appeal lies in traits that have changed little over time: scarcity, liquidity, global recognition, freedom from default risk, and the ability to preserve purchasing power across time and political regimes. The World Gold Council, in its 2026 central bank survey, cited crisis performance, store-of-value qualities, and diversification as key reasons institutions hold gold.
What role does gold play in a balanced portfolio? Amid renewed enthusiasm for gold, it is worth restating what the asset can and cannot do. Gold is not a reliable short-term inflation hedge, a guaranteed shield against every equity sell-off, or an inherently low-volatility asset (as recent price action has shown). Its portfolio value instead lies in four attributes: i) low long-term correlation with stocks and bonds; ii) a tendency for correlations to turn more defensive during severe equity drawdowns; iii) liquidity during periods of stress; and iv) resilience when confidence in money or sovereign credit weakens.
Putting it into numbers. To quantify the benefits of holding gold, we backtested a range of hypothetical balanced portfolios using monthly total returns for global equities, global investment-grade bonds, and gold. Each portfolio was rebalanced annually to its strategic target weight, with gold allocations ranging from 0% to 15% and funded proportionately from equities and bonds.
Higher returns with lower volatility.Our backtesting found that a hypothetical balanced USD portfolio would have delivered a higher risk-adjusted return and lower maximum drawdown if gold was added at between 5-15% allocations. This supports our thesis that modest allocations to gold can improve the quality and consistency of portfolio outcomes over time. For balanced portfolios, a strategic allocation in the 5-10% range is a good starting point, providing palpable diversification benefits without materially changing portfolio composition. Higher allocations can be considered for investors who: i) prioritise wealth preservation over income generation; and ii) face elevated monetary and geopolitical uncertainty. However, this also increases concentration risk and opportunity cost within the portfolio.
What should investors do?
On portfolio implementation. With the case for a strategic long-term gold allocation established, implementation should focus on discipline rather than market timing. Investors should maintain a core allocation rather than moving fully in and out based on price forecasts. Underweight or overweight positions can be adjusted gradually, potentially in two or three tranches. Significant corrections should be used to rebalance towards the strategic target, while exceptionally strong rallies may justify trimming if gold becomes materially overweight. Investors should also distinguish strategic holdings from tactical positions: strategic exposure should favour transparent, physically backed, and liquid instruments, while futures and leveraged products are better suited to short-term tactical use. In short, gold should be managed through allocation and rebalancing, not through repeated attempts to anticipate its next narrative.
Gold’s strategic role endures. Gold may remain volatile as markets continue to assess the US-Iran conflict, inflation, and monetary policy. Nevertheless, the correction increasingly resembles the final stages of a positioning and valuation reset rather than the end of gold’s structural bull case. Support from Asian physical demand and a less leveraged market provide reasons to believe that the balance of risks is improving. More importantly, investors do not need to forecast the precise catalyst for gold’s next rally. Its strategic purpose is to preserve wealth and provide diversification when conventional portfolios are placed under stress.
Figure 1: A summary of gold's YTD price action
Source: Bloomberg, DBS
Download the PDF to read the full report.
Topic
This information is for your private use only and may not be passed on, reposted or reproduced. The contents of this information are strictly confidential and are not transferrable, assignable or meant for reissuance to any third party, whether in whole or in part.
This information does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction. It does not have regard to your specific investment objectives, financial situation or particular needs. It is not intended to provide, and should not be relied upon for accounting, legal or tax advice.
All investments involve risks and you can lose part or all of your investment. You should carefully read the product offering documentation and any product terms before making any investment. If you have any doubt, please seek independent professional advice or otherwise you should carefully consider whether any product mentioned in this publication is suitable for you. Any investment product(s) mentioned herein is/are not the only product(s) that is/are aligned with views stated herein and may not be the most preferred or suitable product for you. There are other investment product(s) available in the market which may better suit your investment profile, objectives and financial situation.
DBS or persons/entities connected to the DBS Group may, or in the future, have interests in and may affect transactions in the underlying product(s) mentioned. Companies connected to DBS may have arrangements with the issuer(s) of the underlying product(s) to market or sell its product(s). Where any company within the DBS Group is the product provider, such company may be receiving fees from the investors. In addition, companies within the DBS Group may also perform broking, investment banking and other banking or financial services to the issuers or the related companies.
DBS Group does not make any warranty as to this information’s accuracy, timeliness, adequacy or completeness for any particular purpose, and thus accepts no responsibility for any losses whatsoever arising from or in connection with the use or reliance on this information and any related documents. Past performance is no guarantee of future results, and future results may not meet your expectations due to a variety of economic, market and other factors. This information is subject to change without notice. All figures and amounts stated are for illustration purposes only and shall not bind DBS Group.
If this information has been distributed by electronic transmission, such as e-mail, then such transmission cannot be guaranteed to be secure or error-free.
This information is not directed to, or intended for distribution to anyone who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
This publication has not been reviewed or authorised by any regulatory authority in Singapore, Hong Kong, Dubai International Financial Centre, Thailand, United Kingdom or elsewhere. There is no planned schedule or frequency for updating the information discussed in this publication.
If any specific product(s) are mentioned herein, such investment product(s) is/are are not the only product(s) that is/are aligned with the views stated in the research report(s) and may not be the most preferred or suitable product for you. There are other investment product(s) available in the market which may better suit your investment profile, objectives and financial situation.
The English version of all documents shall apply and prevail over that in other languages that may be provided for your reference.
Dubai International Financial Centre
This communication is provided to you as a Professional Client or Market Counterparty as defined in the DFSA Rulebook Conduct of Business Module (the "COB Module"), and should not be relied upon or acted on by any person which does not meet the criteria to be classified as a Professional Client or Market Counterparty under the DFSA rules.
This communication is from the branch of DBS Bank Ltd operating in the Dubai International Financial Centre (the "DIFC") under the trading name "DBS Bank Ltd. (DIFC Branch)" ("DBS DIFC"), registered with the DIFC Registrar of Companies under number 156 and having its registered office at units 608 - 610, 6th Floor, Gate Precinct Building 5, PO Box 506538, DIFC, Dubai, United Arab Emirates.
DBS DIFC is regulated by the Dubai Financial Services Authority (the "DFSA") with a DFSA reference number F000164.
Where this communication contains a research report, this research report is prepared by the entity referred to therein, which may be DBS Bank Ltd or a third party, and is provided to you by DBS DIFC. The research report has not been reviewed or authorised by the DFSA. Such research report is distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBS DIFC.
Unless otherwise indicated, this communication does not constitute an "Offer of Securities to the Public" as defined under Article 12 of the Markets Law (DIFC Law No.1 of 2012) or an "Offer of a Unit of a Fund" as defined under Article 19(2) of the Collective Investment Law (DIFC Law No.2 of 2010).
The DFSA has no responsibility for reviewing or verifying this communication or any associated documents in connection with this investment and it is not subject to any form of regulation or approval by the DFSA. Accordingly, the DFSA has not approved this communication or any other associated documents in connection with this investment nor taken any steps to verify the information set out in this communication or any associated documents, and has no responsibility for them. The DFSA has not assessed the suitability of any investments to which the communication relates and, in respect of any Islamic investments (or other investments identified to be Shari'a compliant), neither we nor the DFSA has determined whether they are Shari'a compliant in any way.
Any investments which this communication relates to may be illiquid and/or subject to restrictions on their resale. Prospective purchasers should conduct their own due diligence on any investments. If you do not understand the contents of this document you should consult an authorised financial adviser.
Hong Kong
This publication is distributed by DBS Bank (Hong Kong) Limited (CE Number: AAL664) (“DBSHK”) which is regulated by the Hong Kong Monetary Authority (the "HKMA") and the Securities and Futures Commission. In Hong Kong, DBS Private Bank is the private banking division of DBS Bank (Hong Kong) Limited.
To the extent that DBSHK does not solicit the sale of or recommend any financial product to you or where any service is provided as a transactional execution service, DBSHK is not acting as your investment adviser or in a fiduciary capacity to you. If DBSHK solicits the sale of or recommends any financial product to you, the financial product must be reasonably suitable for you having regard to your financial situation, investment experience and investment objectives. No other provision of this document or any other document DBSHK may ask you to sign and no statement DBSHK may ask you to make derogates from this clause.
In any case, DBSHK has not given and will not give any representation, guarantee or other assurance as to the outcome of any investment based on the information provided. “Financial product” means any securities, futures contracts or leveraged foreign exchange contracts as defined under the Securities and Futures Ordinance (Cap.571 of the Laws of Hong Kong). Regarding “leveraged foreign exchange contracts”, it is only applicable to those traded by persons licensed for Type 3 regulated activity. The Information has not been reviewed or authorised by the HKMA, or any regulatory authority elsewhere.
This publication is provided to you as a “Professional Investor” (defined under the Securities and Futures Ordinance of Hong Kong).
DBSHK is not the issuer of the research report unless otherwise stated therein. Such research report is distributed on the express understanding that, whilst the information contained within is believed to be reliable, the information has not been independently verified by DBSHK.
India
This document is provided by DBS Bank India Ltd. (“DBIL”) for information purpose only, on “as is” basis. It does not create any legally binding obligations on DBIL. This document is not intended to be source of advice in respect of the material presented or information published, and shall not be construed to be legal, tax, financial or investment advisory. This document is not, and should not be construed as, an offer, invitation, recommendation or solicitation to enter into any transaction in relation to any of the products and services mentioned herein. DBIL does not make any warranty of any kind, express or implied, including but not limited to warranties of completeness, accuracy of information, merchantability or fitness for a particular purpose. This document has not been registered and/or approved by any governmental or regulatory authority in any jurisdiction including but not limited to the Securities and Exchange Board of India, the Reserve Bank of India or any other governmental or regulatory body in India.
Indonesia
This publication is distributed by PT Bank DBS Indonesia (DBSI). DBSI is licensed and supervised by the Indonesia Financial Services Authority (OJK). This publication is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to you to subscribe to or to enter into any transaction as described, nor is it calculated to invite or permit the making of offers to the public to subscribe to or enter into any transaction for cash or other consideration and should not be viewed as such. The Customer should not rely on the information set out herein as the sole basis for any financial decision.
Singapore
This publication is distributed by DBS Bank Ltd (Company Regn. No. 196800306E) ("DBS") which is an Exempt Financial Adviser as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore (the "MAS").
This publication is provided to you as an “Accredited Investor” (defined under the Securities and Futures Act of Singapore and the Securities and Futures (Classes of Investors) Regulations 2018) or an “Institutional Investor” (defined under the Securities and Futures Act of Singapore and the Securities and Futures (Classes of Investors) Regulations 2018) for your private use only and may not be passed on or disclosed to any person nor copied or reproduced in any manner.
Thailand
This publication is distributed by DBS Vickers Securities (Thailand) Co., Ltd. (“DBSVT”).
The information contained in this publication is not intended to be either an offer, invitation or solicitation to buy or sell any securities, derivatives, or any other financial products or services, provide financial advice or investment advice, facilitate or take deposits, or provide any other financial products or financial services of any kind in any jurisdiction. This publication is provided for information purposes only and is not intended to provide, and should not be construed as, advice.
This publication has not been reviewed by any regulatory authority in Thailand and has not been registered as a prospectus with the Office of the Securities and Exchange Commission of Thailand. Accordingly, any documents and materials, in connection with the offer or sale, or invitation for subscription or purchase of the securities, derivatives, or any other financial products or services, may only be circulated or distributed by an entity as permitted by applicable laws and regulations. DBS and DBSVT does not have any intention to solicit you for any investment or subscription in the securities, derivatives, or any other financial products or services, and any such solicitation will be made by an entity permitted by applicable laws and regulations.
United Kingdom
This communication is from DBS Bank Ltd., London Branch located at 9th Floor, One London Wall, London EC2Y 5EA. DBS Bank Ltd. is regulated by the Monetary Authority of Singapore and is authorised and regulated by the Prudential Regulation Authority. DBS Bank Ltd. is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of DBS Bank Ltd., London Branch’s regulation by the Prudential Regulation Authority are available upon request.