Gold price to struggle as official reserve accumulation is not a central bank priority right now

NEW YORK (March 23) Central bank demand has been a key factor behind gold’s historic rally since late 2022, but that trade could be coming to an end—at least for the foreseeable future—as the war in Iran forces policymakers to prioritize energy security and economic stability over reserve diversification.

This shift in priorities comes at a particularly fragile moment for the gold market. Prices have just experienced their sharpest weekly decline since the 1980s, following what U.S. Bank Wealth Management Senior Investment Strategist Rob Haworth described as a speculative blow-off top earlier this year.

After hitting all-time highs in late January, gold has struggled to regain momentum, even as geopolitical tensions intensify—an unusual divergence for an asset traditionally viewed as a safe haven.

According to Haworth, the breakdown in gold’s typical behavior reflects a broader shift in market dynamics. Rising nominal and real interest rates are eroding the metal’s appeal, while expected flight-to-safety flows have instead favored liquidity—namely the U.S. dollar—rather than traditional hedges like gold or Treasuries.

Even government bonds have failed to attract demand, with yields climbing to multi-month highs, underscoring how inflation and supply shocks are dominating investor thinking. Haworth noted that even inflation-protected securities (TIPS) are not safe havens in the current environment.

“ They're duration-sensitive too, and you've got higher real yields moving up, so they're getting hurt,” he said.

At the same time, speculative positioning in gold has become a growing headwind. Haworth noted that the $4,500 level represents an important psychological threshold, with further downside likely if investors are forced to liquidate amid broader portfolio stress.

“Speculators are now faced with a difficult decision. I think many were trying to wait out the volatility in February, just waiting to see what would happen, but a lot of that money is now underwater,” he said. “It might only get worse.”

Not only are speculators underwater, but Haworth said they also can’t rely on central banks to step in to provide much-needed support.

Haworth explained that many central banks that drove gold’s rally are also net energy importers. With oil prices spiking and liquefied natural gas and fertilizer costs rising sharply, their financial resources are being redirected toward securing essential supplies.

Haworth suspects capital that might have been allocated to gold reserves is now being used to “sustain life”—funding energy, food, and critical infrastructure needs.

This reallocation helps explain why gold has failed to respond positively to escalating geopolitical risk. He said that in the current environment, safe-haven demand is being replaced by a scramble for liquidity.

Countries and companies alike are prioritizing access to U.S. dollars to purchase energy and maintain supply chains, rather than accumulating gold.

“The longer this goes on, the worse it will get; it’s holding oil prices up, hurting the global economy—but it’s not helping gold,” Haworth said, highlighting a key paradox facing investors.

Looking ahead, the duration of the conflict—and specifically the sustained disruption to energy flows—will be a critical factor. Haworth said he sees the Trump administration’s four- to six-week window as a key inflection point.

If elevated oil prices persist into mid-April, businesses and consumers will begin making more permanent adjustments, including passing higher costs through to end markets, he said. That, in turn, could deepen inflationary pressures and further tighten financial conditions.

For gold, that scenario presents a difficult backdrop. Higher inflation driven by supply constraints tends to push bond yields higher, which historically weighs on non-yielding assets. At the same time, traditional defensive assets are failing to provide protection, leaving investors with fewer clear hedges.

In this environment, Haworth said he does not see evidence of a structural shift away from the U.S. dollar or Treasury market that would immediately revive gold’s appeal.

Looking at gold, he added that he expects the precious metal to experience a period of consolidation as speculative excess is worked out and macro conditions stabilize.

He added that central bank buying may eventually return, but not until geopolitical disruptions ease and energy markets normalize. Until then, gold investors are left navigating an unfamiliar landscape—one where war, inflation, and supply shocks are not driving safe-haven demand for the yellow metal, but rather diverting capital away from it.

“There is this reset happening. It becomes not a price level where they will accumulate gold, but rather a time period,” he said. “It’s not that central banks are price sensitive. They're not a hedge fund that marks to market the value of their gold reserves, but right now, because of society’s needs, they have a call for other assets that are more important and scarcer at this time.”

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