At the start of 2026, the consensus view was that gold's bull market still had room to run. There was good reason for that expectation.
A long-term price chart shows the rally gathering momentum in early 2024. Since February 2024, gold has climbed from about ₹64,000 per 10 gm to around ₹183,000 per 10 gm, a gain of roughly 186% in less than two years, equivalent to a compounded annualized growth rate (CAGR) of 73%.
Those returns outpaced most stocks.
Then came a correction that caught many investors and traders off guard.
So, where does gold go from here? Will prices continue to fall, or is another rally likely?
The answer depends on the same forces that have long driven the gold market.
Trade wars
Much of gold's recent strength was driven by uncertainty surrounding US President Donald Trump's tariff policies, which boosted demand for safe-haven assets.
Gold has traditionally benefited during periods of economic stress or market uncertainty. Concerns over global trade prompted investors to reassess the potential impact of tariffs on corporate profits and economic growth.
As a result, some investors reduced exposure to equities and shifted money into defensive assets such as gold.
That backdrop has since changed. The US has reached trade agreements with several countries, and, according to media reports, a deal with India is also expected soon.
As trade uncertainty has eased, so has the appeal of gold as a defensive investment.
Inflation concerns
Inflation remains another key driver.
While inflation in the US has not risen sharply, it continues to be closely watched.
Historically, gold has served as a hedge against inflation. If US inflation accelerates meaningfully, gold prices are likely to benefit.
Until the Iran war began, financial markets were relatively unconcerned about inflation in Western economies.
If the conflict ends with a lasting peace treaty, markets will closely monitor whether lower crude oil prices ease inflationary pressures.
Geopolitics
Gold has long been viewed as a store of value during periods of geopolitical instability. Throughout history, wars and political uncertainty have encouraged investors to preserve wealth through physical gold rather than other financial assets. That role is unlikely to change.
Even if conflicts in West Asia and Ukraine subside, investors are unlikely to stop viewing gold as an important portfolio hedge.
US recession fears
Higher crude oil prices recently fuelled concerns about a possible US recession. Gold typically performs well when recession fears increase.
If oil prices continue to fall, recession concerns may ease, reducing support for gold. Conversely, any development that raises the probability of a US recession could restore investor interest in the metal.
Central bank purchases
Central banks have been net buyers of gold for years, and there are indications that the pace of purchases has increased. It is not only individual investors who have turned to gold during periods of economic and geopolitical uncertainty.
Central banks have also responded to global instability by increasing their gold holdings.
That suggests they expect geopolitical volatility to persist. Against that backdrop, continued central bank buying could remain an important support for gold prices.
Investors should monitor this trend closely.
Could gold prices rise again?
The short answer is yes. When market sentiment turns decisively bearish, it is easy to overlook how quickly conditions can reverse.
The same factors that have weighed on gold could also drive its next rally if they move in the opposite direction.
That could happen if:
Inflation in the US rises sharply.
The war in West Asia flares up again.
Another major geopolitical conflict emerges.
US recession fears return.
Interest rate hike concerns abate.
The dollar's uptrend stalls or reverses.
Central banks accelerate gold purchases.
For now, however, the bears appear to have the upper hand, and market sentiment toward precious metals remains weak.
That makes it all the more important for investors to watch for changes in the underlying factors driving gold prices rather than assume the recent decline will continue indefinitely.
Conclusion
At Equitymaster, we believe investors should keep 5-10% of their portfolio allocated to gold at all times.
Gold should not be viewed as a substitute for other asset classes. Instead, it should form part of a diversified long-term portfolio.
Trying to speculate on short-term price movements is unlikely to be a productive strategy.
If you are considering an investment in gold, invest with a time horizon that extends well beyond 2026.
Do your due diligence.
Happy investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com