• 'The key issue is liquidity. Investors rush into the US dollar, euro and other currencies rather than into gold and silver because they want cash at hand and the ability to meet payment obligations,' Thorsten Polleit says

ISTANBUL 

Gold prices have struggled to extend gains despite escalating geopolitical tensions and sharp volatility in oil markets, as investors prioritize liquidity and high-yielding assets while awaiting clearer signals on US monetary policy.

Precious metals have traded near historic highs in recent weeks but have not surged as strongly as expected, even as the Middle East conflict sends oil prices sharply higher and rising fears of global inflation.

At the beginning of the Iran war, the price of gold surged past $5,400 per ounce, before retreating to a level of around $5,100.

Energy markets have experienced extreme volatility since the outbreak of the Iran conflict. International benchmark Brent crude briefly surged to around $119.50 per barrel, the highest since 2022, before retreating and later climbing above $100 amid supply disruptions.

Oil prices started the year near $60, meaning prices have risen more than 50% in 2026, reflecting fears that disruptions in the Strait of Hormuz, a route carrying roughly one-fifth of global oil supply, could significantly tighten global energy markets.

The surge in energy prices has raised concerns about a renewed inflation shock that could complicate efforts by central banks to cut interest rates.

Despite the developments, gold has not experienced the type of explosive rally often associated with major geopolitical crises.

Liquidity demand limits gold gains

Thorsten Polleit, an honorary professor of economics at the University of Bayreuth, said investors’ preference for liquidity has limited the precious metal’s upside in the short term.

“The key issue is liquidity,” Polleit told Anadolu. “Investors rush into the US dollar, euro and other currencies rather than into gold and silver because they want cash at hand and the ability to meet payment obligations.”

He said concerns about tightening credit conditions and elevated global debt levels can also prompt investors to prioritize liquid assets over commodities.

“This may lead to selling pressure on precious metals in the short term, preventing their prices from moving further up for the time being,” he added.

Global debt has surpassed $310 trillion, according to the Institute of International Finance, making markets more sensitive to shifts in financial conditions and increasing demand for cash and short-term assets.

Dollar strength, yields weigh on prices

Analysts also point to macroeconomic factors such as a strong US dollar and elevated Treasury yields as major headwinds for gold.

Ewa Manthey, commodities strategist at ING, said the macroeconomic environment, rather than a lack of geopolitical risk, is capping gold’s gains.

“Gold’s upside has been capped by the macro backdrop,” said Manthey. “A strong US dollar and elevated real yields have raised the opportunity cost of holding non-yielding assets like gold.”

The US dollar index surged past level for the first time in four months, rising more than 2% since the beginning of the Middle East conflict.

She added that resilient investor risk appetite and uneven flows into gold-backed exchange-traded funds (ETFs) have also limited price gains.

“ETF flows have remained bumpy, further limiting the upside to gold prices,” she said.

Higher Treasury yields provide investors with attractive returns on safe assets, competing directly with gold for capital allocation.

“As long as markets remain uncertain about the timing and pace of Fed easing, these factors are likely to continue constraining rallies,” said Manthey.

Investors turning to cash, Treasuries

Periods of heightened financial stress often drive investors toward cash and government bonds rather than precious metals.

“For many investors, cash is king,” said Polleit, noting that the US dollar remains the dominant global safe-haven currency.

Manthey also said investors have shown a preference for short-dated Treasuries and cash during periods of elevated yields.

“In periods of elevated yields, investors have favored cash, short-dated Treasuries and the US dollar as more immediately attractive defensive assets,” she said.

But she noted that gold continues to benefit from structural demand from central banks and long-term investors seeking diversification.

Central banks have purchased more than 1,000 metric tons of gold annually in recent years, according to World Gold Council data, marking one of the strongest periods of official-sector demand in decades.

Outlook: volatility but long-term upside

Looking ahead, analysts said several catalysts could trigger a stronger rally in precious metals.

Manthey said a clearer pivot toward Federal Reserve rate cuts, falling real yields or sustained weakness in the US dollar would support gold prices.

“A clearer pivot toward Fed rate cuts, falling real yields, or sustained US dollar weakness would be key catalysts,” she said.

She added that geopolitical developments could also influence the market.

“An escalation in geopolitical risks that directly threatens global growth or financial stability would be more supportive for gold,” said Manthey.

Polleit also expects gold and silver to rise in the medium term as confidence in fiat currencies weakens.

“The upward price trend of gold and silver is well established,” he said. “Prices will be much higher in 12 to 24 months compared with today’s levels.”

He warned that deeper geopolitical turmoil, recession risks or a global debt crisis could accelerate gains in precious metals.

“If confidence in the fiat currency regime declines further, you could see prices of gold and silver that are difficult to imagine from today’s perspective,” said Polleit.

He said gold could rise 10% to 20% in the next 18 months, potentially reaching $5,500 to $6,000 per ounce, while silver could climb to $120 to $150 in a bullish scenario driven by rising investor demand and weakening confidence in fiat currencies.