Three strikes against gold: rates, central banks and India

• Gold recovered from its April low — but so did every other major asset class. The rebound itself does little to reinforce gold’s crisis-hedging properties beyond what the initial selloff had already revealed.
• Equities recovered on the back of strong fundamentals: Nvidia at USD 81.6 billion quarterly revenue (+85% year-on-year (YoY)) for 1Q26, Samsung's operating profit up eight times YoY, SK Hynix at a record 72% gross margin. Gold's recovery has no equivalent anchor.
• Fed Governor Christopher Waller called rate cut talk 'crazy' on 22 May and explicitly called for removing the Fed's easing bias. Market pricing moved to approximately a two-in-three probability of a rate hike by October, which further deepens gold's zero-yield penalty.
• Turkey sold 79 tonnes of gold in 1Q26 — the world's largest central bank seller on record for the quarter. Russia has sold consistently since 2025. The Iran war is forcing energy-importing economies to liquidate gold for dollars, not accumulate it. India — the world's second-largest gold consumer — tripled its import duty from 6% to 15%, while Prime Minister Modi publicly asked citizens to stop buying gold for one year.
• We maintain a 0% to 10% allocation recommendation to gold only as a portfolio diversifier.

Earlier in the year, we argued that gold would fail as a crisis hedge. Gold fell 11.7% between the outbreak of US-Iran hostilities and the temporary lull in strikes announced on 8 April. It has since recovered, but the key question is what that rebound actually changes in relation to the original thesis. In our view, it changes nothing.

Every major asset class recovered during the same period. The S&P 500 reached record highs above 7,500. The Nasdaq climbed sharply on the back of Nvidia's record quarter (USD 81.6 billion in revenue). The KOSPI staged a single-day gain of 8.4% on 21 May 2026. A recovery that arrives simultaneously across every risk asset in every region is a signal about temporary de-escalation sentiment, not about gold's particular merits. Meanwhile, the US and Iran announced a 60-day extension to the ceasefire on 29 May 2026. Given the uncertain outcome, we expect macro uncertainty to remain elevated.

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The rate environment has gotten materially worse for gold since April.

On 22 May, Fed Governor Christopher Waller (previously an advocate for rate cuts, voted for a cut in Jan) called rate cut talk 'crazy' and said he would support removing the easing bias from the Fed's policy statement. Before his remarks, the first hike was priced for December 2026. Following them, market pricing moved to approximately a two-in-three probability of a hike as early as the October meeting.

The shift in market pricing since the war broke out illustrates how dramatically the rate outlook has changed. At the time of the Iran war outbreak on 27 February, CME FedWatch data implied approximately 2.4 rate cuts priced in by the December 2026 meeting, with an implied Fed Funds rate of 3.03%. As of 28 May 2026, that has flipped to approximately 0.6 hikes priced in, with an implied rate of 3.78% — a swing of three rate moves in three months.

Figure 1: Fed funds rate expectations

This repricing is analytically decisive for gold. When real yields on inflation-protected bonds rise, gold becomes relatively less attractive because it pays nothing. The 30-year US Treasury yields are above 5%, approaching levels not seen since 2007.

Kevin Warsh was sworn in as Fed Chair on 22 May 2026. His confirmation hearing signalled hawkish independence, and he explicitly refused to commit to cuts. A chair who cannot carry the committee majority toward cuts does not produce a dovish Fed. It produces one that holds rates higher for longer, which is precisely the environment in which gold's zero yield creates the heaviest opportunity cost.

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Equities recovered on earnings. Gold recovered on nothing.

Both gold and equities recovered since the April low, but equities recovered on cash flows. Nvidia reported USD 81.6 billion in quarterly revenue, an 85% year-on-year (YoY) increase, and guided for USD 91 billion next quarter. Samsung's operating profit rose more than eight times YoY. SK Hynix posted a record gross margin of 72%. These are real cash flows generating dividends and buybacks that compound for shareholders over time.

Gold's recovery has no equivalent anchor. There is no earnings release, no revenue growth, no cash flow to discount, and no dividend. When the sentiment that drove the recovery fades, there is nothing underneath to slow the decline.

The institutional selling has intensified: Turkey, Russia, and a structural regime shift.

The 1Q26 World Gold Council data provides the fuller picture of central bank behaviour since the Iran war began.

Table 1: Central bank behaviour towards gold since the beginning of the US-Iran war

Central bank	Recent activity	Context
Turkey (CBRT)	Sold 79 tonnes — world's largest seller in 1Q26	Lira defence via gold-for-USD swaps. Holdings fell from 830 to 693 tonnes since the war began.
Russia (CBR)	Selling since 2025; holdings at four-year low	Raised more than USD 4 billion through gold sales since January 2026.
Poland (NBP)	Largest buyer: added 20+ tonnes	Multi-year plan toward 700-tonne target. Continues strategic accumulation.
All central banks	Net purchases 244 tonnes (World Gold Council 1Q26 estimate)	Headline positive but carried by smaller buyers; largest active participants switched to net sellers.
Source: World Gold Council Gold Demand Trends Q1 2026.

The 244-tonne net purchase headline is analytically misleading. It is being carried by Poland, Brazil and smaller emerging market buyers, while Turkey and Russia (respectively the eleventh and fifth largest national central bank gold holders) have switched from accumulation to liquidation. They are selling because the US-Iran war is forcing energy-importing economies to prioritise dollar liquidity over hard assets. This is an emergency liquidation driven by the same energy shock that gold was supposed to hedge.

India: the world's second-largest consumer tells its citizens not to buy.

On 10 May 2026, Prime Minister Modi made a rare direct public appeal, asking Indian citizens to stop buying gold for one year and describing them as "guardians of the rupee." Within days, import duties on gold and silver were raised from 6% to 15% — the largest single increase on record, fully reversing the duty cut of July 2024. Indians imported USD 72 billion worth of gold in the fiscal year ended 31 March 2026. With the rupee against the dollar down more than 7% year-to-date and reserves under sustained pressure from USD 123 billion in annual oil imports, gold became the one major import the government could constrain without damaging the economy.

Gold bulls argue the metal is what financially stressed economies reach for in a crisis. However, things have played out differently. Turkey sold its gold to defend its currency. India taxed gold imports and asked its citizens to stop buying. Both responses point in the same direction: under real financial pressure, gold is not what governments reach for. It is what they reach past.

Moreover, the World Gold Council expects India’s gold demand to decline by approximately 10% compared to the previous year (about a 50 to 60 metric tonnes drop in gold demand).

Our position: unchanged, and reinforced by three new developments

We have been recommending a 0% to 10% allocation to gold for diversification. That recommendation stands. In fact, recent developments further reinforce the original thesis.

The shift in rate expectations strengthens the case for holding gold as a portfolio diversifier. At the same time, evidence of institutional selling in markets such as Turkey and Russia adds to the supply-side narrative, while softer demand trends in India introduce an additional dimension that was not fully captured in the original analysis.

Gold does one thing well: it moves differently from everything else. Its long-run correlation with US equities is essentially zero, making a small allocation useful as a diversifier. However, a larger allocation based on the expectation that gold reliably protects capital during geopolitical crises is less supported by the evidence. The Iran conflict has now added another data point reinforcing that conclusion.

Table 2: Correlation between gold and other asset classes

Asset	Longer-term (21 May 1971 to 22 May 2026)	Recent period (21 May 2021 to 22 May 2026)
US Equities	0.006	0.128
US Corporate Bonds	0.067	0.183
US Treasuries	0.070	0.211
World ex US Equities	0.143	0.308
Emerging Markets Equities	0.175	0.320
Commodities	0.389	0.359
Source: World Gold Council. Data as of 22 May 2026.

For investors seeking diversification, we recommend the SPDR Gold MiniShares (NYSE: GLDM). Investors should assess suitability against their own investment objectives, financial situation and risk tolerance before investing.

Declaration

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report, including all investment theses, ratings, price targets and conclusions, has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.