(Kitco News) - Although gold has managed to reclaim support above $4,100 an ounce, one research firm is warning investors that a decisive bullish breakout is likely to remain out of reach as renewed turmoil in the Middle East keeps inflation pressures elevated and reinforces expectations for tighter U.S. monetary policy.
According to commodity analysts at Metals Focus, renewed conflict between the United States and Iran is supporting higher energy prices, fueling inflation concerns and forcing the Federal Reserve to maintain its new tightening bias. The analysts expect those dynamics to keep gold trading in a broad range through the remainder of the summer.
Beyond the energy market, Metals Focus said the continued boom in artificial intelligence investment is also contributing to persistent inflationary pressures, complicating the outlook for interest rates.
In their latest research note, the analysts said that growing confidence the Federal Reserve will raise interest rates at least once more this year is creating significant opportunity-cost headwinds for gold in the near term.
“Overall, we expect gold to enter a period of consolidation over the summer, broadly within the range that has prevailed in recent months. In our view, it will be difficult for prices to break decisively out of this range before the market begins to scale back expectations of further policy tightening, perhaps during the latter part of Q3,” the analysts said in their note.
Metals Focus added that rising real yields are only part of the challenge. July and August are typically the weakest months of the year for physical gold demand, and elevated prices continue to weigh on jewelry consumption.
“Even before the Northern Hemisphere entered its summer lull, physical demand had already slowed in recent months following a notable pickup in early 2026. Much of this recent weakness reflects a cooling in retail investment across all major markets,” the analysts said. “Following the price correction in June, feedback suggests there have been tentative signs of improvement in both China and India. That said, these gains have come from a low base and remain modest, particularly given that both countries will only enter their seasonally stronger demand period from August or September onwards.”
While Metals Focus expects gold to remain range-bound in the near term, the firm stressed that the broader bull market remains intact. The analysts anticipate prices will begin recovering toward the end of the third quarter as markets reassess the outlook for U.S. monetary policy.
“From that point onwards, we expect the rally in gold prices to resume. This reflects our view that the Fed is more likely to keep policy rates unchanged for the remainder of 2026. Although inflation is unlikely to disappear quickly, we believe policymakers will be willing to tolerate above-target inflation in order to avoid a material slowdown, let alone a recession,” the analysts said.
According to Metals Focus, the structural drivers that fueled gold's record rally over the past year remain firmly in place. The analysts continue to view bullion as an essential portfolio diversifier amid persistent geopolitical uncertainty, growing concerns over the long-term outlook for the U.S. dollar, and increasingly stretched equity valuations.
“US policy uncertainty should persist and could intensify, depending on the outcome of the mid-term elections. Concerns over the long-term outlook for the US dollar are also unlikely to fade. Geopolitical risks should remain elevated, particularly given the precedent set by recent US unilateral actions and Iran’s recognition of the strategic leverage offered by the Strait of Hormuz,” the analysts said. “Finally, equity valuations have become even more stretched. Against this backdrop, gold’s role as both a safe-haven asset and a portfolio diversifier remains as important as ever.”
