Central Bank Gold Purchases

The Middle East situation has abruptly escalated, with the United States and Israel launching joint military operations against Iran. Iran retaliated by blocking the Strait of Hormuz. Short-term market risk aversion has markedly intensified, with precious metal allocation demand remaining prominent. The trajectory of subsequent geopolitical developments will determine whether risk premiums persist. From a medium-to-long-term perspective, the persistent escalation of US federal government debt will accelerate the trend towards de-dollarisation. Furthermore, with the Federal Reserve remaining in a rate-cutting cycle and global geopolitical complexities persisting, global allocation demand shows no signs of abating. Consequently, the central price point for precious metals is poised to continue its upward trajectory.

Escalating Geopolitical Tensions

On 28 February local time, tensions in the Middle East abruptly escalated. Merely two days after the conclusion of the third round of US-Iran negotiations, Israel and the United States launched successive military strikes against Iran. These actions have resulted in the deaths of Iran's Supreme Leader Ayatollah Ali Khamenei and several other high-ranking Iranian officials, with nearly a thousand additional casualties from the US-Israeli airstrikes.

In retaliation, Iran launched multiple waves of ballistic missiles at Israel and conducted broader attacks on US military bases in Middle Eastern neighbours including the UAE, Saudi Arabia, Qatar, Bahrain, and Kuwait. Iranian military sources previously stated that 14 US bases across the Middle East had been targeted. On the evening of 28 February, Iran's Islamic Revolutionary Guard Corps announced a ban on all vessels transiting the Strait of Hormuz. Subsequently, an oil tanker attempting to pass through the strait on 1 March was struck and began sinking. As one-fifth of the world's seaborne oil shipments transit the Strait of Hormuz, its closure would exert significant pressure on international energy markets. International oil prices are expected to surge sharply in the near term.

In a video address on 1 March, US President Donald Trump stated that US and Israeli military operations against Iran would continue until all objectives were achieved. Iranian Foreign Minister Mohammad Javad Zarif responded the same day, asserting that Iran would determine when and how this US-Israeli-imposed war of aggression would conclude.

In the short term, the geopolitical conflict remains deadlocked, with resurgent risk aversion providing support for gold prices. Attention should now focus on the intensity and persistence of Iran's countermeasures.

US Inflation Data Rises

Both month-on-month and year-on-year US Producer Price Index (PPI) figures for January significantly exceeded market expectations. Surging service costs were the primary driver, with wholesale and retail trade service profit margins jumping 2.5%. Commodity prices declined, weighed down by energy, though core commodities rose 0.7% month-on-month. The comprehensive rise in January's US producer price index underscores persistent inflationary pressures. Elevated inflation readings will further complicate the Federal Reserve's monetary policy decisions, prompting investors to maintain caution regarding near-term market trajectories.

US GDP growth for the fourth quarter of 2025 stood at 1.4%, significantly below the market forecast of 2.5% and also lower than the revised 4.4% recorded for the third quarter of 2025. The significant slowdown in the fourth quarter of 2025 was primarily attributed to the partial federal government shutdown, which dampened government spending and investment. For the full year 2025, US economic growth reached 2.2%, down from 2.8% in 2024 and marking the weakest performance since 2022. Additionally, US labour market data presented a mixed picture. In January 2026, US non-farm payrolls increased by 130,000, the largest gain since April 2025, while the unemployment rate fell to 4.3%. However, employment data for 2025 was revised downwards by 862,000. The employment report indicates that the labour market is gradually stabilising after a year of sustained cooling and sluggish hiring. However, the Bureau of Labour Statistics' concurrent annual benchmark revision significantly downgraded 2025 employment figures, further exposing the extent of earlier statistical distortions.

Considering US employment and inflation data, the pace of near-term interest rate cuts by the Federal Reserve faces certain constraints, with the first reduction this year now anticipated as early as June. For the precious metals market, the Fed's slower rate-cut trajectory may temporarily limit upward momentum in metal prices in the short term. Nevertheless, the medium-term accommodative stance of monetary policy will continue to underpin sustained price growth.

Central Bank Gold Purchases Form Long-Term Support

In 2025, global central banks' net gold purchases reached 863 tonnes, marking a slight decline from the consecutive three-year period of over 1,000 tonnes from 2022 to 2024, yet remaining the second-highest level on record. Central bank gold acquisitions maintained a steady pace in 2026, with Europe and Asia simultaneously advancing reserve diversification, providing sustained support for gold prices.

Overall, persistent geopolitical tensions are likely to maintain gold's relatively firm price trajectory in the near term. From a medium-to-long-term perspective, the fundamental logic underpinning the gold bull market remains robust. Amid multiple converging factors—including the erosion of the US dollar's creditworthiness through sustained debt expansion, complex geopolitical dynamics, and accommodative liquidity conditions—allocation demand from global central banks, institutions, and households is expected to drive gold's price centre of gravity higher.

SunSirs has been continuously tracking price data for over 200 commodities for nearly 20 years, please contact support@sunsirs.com for subscription.