By Charlotte Peuron, Portfolio Manager Thematic Equities, Crédit Mutuel Asset Management

Gold, often viewed as a “currency,” has benefitted since the COVID crisis from large budget deficits across developed economies. Highly accommodative fiscal policies increased debt issuance, weakening issuing currencies and boosting Gold’s relative value (USD, EUR, etc.). After several years of strong performance, gold has entered a consolidation phase since the outbreak of the war in Iran and the battle over the Strait of Hormuz. Several factors help explain this trend:

1. As is often the case, gold was part of the broader market sell-off at the beginning of the conflict.
2. Some central banks took advantage of historically high price levels to sell part of their reserves in order to finance expenditures, highlighting gold’s role as a reserve asset. Short-term investors also took profits through the sale of gold ETFs in March.
3. Today, gold prices are driven more by changes in real interest rates and monetary policy than by geopolitical risks. The oil supply shock, along with its potential economic and inflationary consequences, has effectively eliminated expectations of further rate cuts by the Federal Reserve, which is also weighing on precious metal prices. Given the current environment, this volatility is likely to persist until these uncertainties are resolved.

Nevertheless, we remain constructive over the medium term, as the underlying fundamentals continue to be strong. Overall, central banks remain net buyers of gold, with purchases exceeding 244 tonnes in the first quarter of 2026 (Source: World Gold Council, 1Q 2026). Gold ETF volumes rebounded and stabilized in April. If inflation becomes entrenched, gold is likely to regain its role as a protective asset following the new rate-hiking cycle. Furthermore, while fiscal responses since the Strait of Hormuz crisis have so far remained relatively “orthodox”, with little additional stimulus, the risk of higher public spending in the near term remains elevated, which would likely support gold prices again. Conversely, if the conflict ends quickly without triggering an acceleration in inflation, the Federal Reserve may seek to stimulate the economy by resuming its rate-cutting cycle. Both scenarios are supportive of gold.