(Kitco News) – Despite gold’s recent underperformance, the rise of cross-asset correlations makes the yellow metal more valuable than ever as a portfolio diversifier, and gold’s long-term outlook remains bullish, according to commodity strategists Willem Sels and Lucia Ku at HSBC.
Sels and Ku reiterated their constructive outlook on gold over the next six months, and said the bank is maintaining its Overweight positioning.
"Inflation concerns have also led to rate volatility and a repricing of monetary policy expectations,” they noted. “Policymakers are likely to maintain current interest rates for some time before easing later. We continue to seek quality yields from investment-grade credit and EM local currency bonds for income generation.”
“However, as cross-asset correlations have increased, we use gold and alternative assets to enhance diversification,” Sels and Lu underlined. “Despite the recent pullback, we remain bullish on gold over the medium to long term due to its diversification benefits and safe-haven demand.”
The analysts added that they still expect gold’s recent headwinds to be short-lived, as the underlying fundamentals remain supportive. “Gold continues to serve as a compelling portfolio diversifier amid geopolitical uncertainty and central bank buying,” they wrote.
HSBC has held fast to their positive outlook for the yellow metal throughout the recent pullback. On March 30, analysts at HSBC Asset Management said gold is behaving more like a risk asset in 2026, selling off sharply amid heightened geopolitical tensions and a stronger dollar, but the de-dollarization trend still makes it a good long-term investment.
"Moves in the gold price since the Iran conflict broke out have defied expectations,” the analysts wrote. “The conventional playbook assumed that mounting geopolitical tensions and economic uncertainty would naturally boost the yellow metal, mirroring last year’s ‘Liberation Day’ episode and sustaining a spectacular two-year rally.”
Instead, the yellow metal has done the opposite, they noted, losing 15% to date in March.
“A stronger US dollar has certainly been a headwind, deterring non-US buyers, while a hawkish repricing of interest rates has increased the opportunity cost of holding a non-yielding asset,” the analysts said. “Yet, gold withstood a similar surge in the greenback and rates throughout 2022, weakening this traditional thesis.”
HSBC believes gold is actually behaving like a risk asset in 2026. “Ownership has shifted towards retail and other leveraged buyers, many of whom are forced to liquidate holdings in periods of market stress,” they noted.
"There remains a decent long-term investment case for gold, particularly amid ongoing global de-dollarisation,” the analysts said. “However, the recent volatility offers a stark reminder: robust portfolio diversification demands a broad-based approach."
On Feb. 15, James Steel, Chief Precious Metals Analyst at HSBC, said volatility will define the precious metals market in 2026 as Fed policy and U.S. dollar exposure continue to shape demand.
In an interview with CNBC, Steel was asked about why gold doesn’t appear to be reacting to the decline in the U.S. 10-year Treasury yield, which has plunged from 4.30% all the way down to 4.00% in just a few days.
“You've put your head on the nail there,” he said. “The change happened in 2022. Before that, if you looked at the real rate on the 10-year – that's the 10-year minus inflation – it had a beautiful inverse correlation with gold, going right back to the end of Bretton Woods, when the gold came off the dollar exchange.”
Steel said that the relationship has broken down completely in recent years. “Gold is not as sensitive to real rates, particularly on the 10-year, as it used to be,” he said. “And that's also when we got a lot of retail buying in the market, elevated geopolitical risks, and also central bank buying.”
“I'm not saying that relationship won't go back,” he added. “But it is not as strong as it used to be, for sure.”
“You heard a lot of talk about gold hitting new highs,” Steel continued. “I always prefer to look at it in real terms, in inflation-adjusted terms. Now, in today's money, that's about $3,400 or so, and we broke above that in April. Gold has made a series of new highs, and the fact that it hasn't jumped up recently, I don't think deters the bull market necessarily.”
“Don't forget, we've had a lot of new money come into the market, and we've had a parabolic rally in January,” Steel said. “When a market goes up like this, it really invites volatility. I think that's going to be the benchmark word for this year – volatility – in gold.”
“Just because it's a safe haven, and just because it's a quality asset, doesn't mean it's not volatile.”
