Gold experienced sharp volatility in the first half of May 2026, as investors reacted to shifting monetary policy expectations, geopolitical tensions and changing inflation forecasts.
Gold prices remained historically elevated despite intermittent corrections, reflecting continued demand for safe-haven assets amid uncertainty in global financial markets.
Bullion broke below $4,600 per ounce in the second week of May as bond yields jumped, with the U.S. dollar strengthening.
The selloff came amid ongoing Middle East tensions and oil holding above $100 per barrel, as traders focused on the inflationary impact of the Iran war and the risk that the Federal Reserve (Fed) will keep rates higher for longer.
Spot gold was trading near $4,543 per ounce heading into the May 16-17 weekend.
At the beginning of May, spot gold had traded near $4,700 per ounce after reaching record highs earlier in the year.
Prices were supported by persistent geopolitical risks, particularly tensions involving Iran and broader instability in energy markets.
Temporary optimism surrounding potential U.S.–Iran negotiations briefly reduced safe-haven demand and caused gold to retreat, but renewed concerns over inflation and oil prices soon restored investor interest in bullion.
A major driver of market sentiment was the outlook for U.S. monetary policy.
During the first half of May, investors increasingly concluded that the Fed would delay interest rate cuts because inflation remained stubbornly high.
Rising energy prices and strong labour market data pushed bond yields higher, reducing the attractiveness of non-yielding assets such as gold.
Several investment banks, including Goldman Sachs and Bank of America, revised their forecasts and postponed expectations for Fed easing until late 2026 or even 2027.
In the first half of May 2026, movements in the pound sterling against the U.S. dollar, in which gold is denominated, were driven mainly by interest-rate expectations, inflation data, geopolitical tensions and contrasting economic indicators in the UK and United States.
Sterling initially strengthened above $1.36 as investors believed the Bank of England would maintain a relatively hawkish stance compared with the U.S. Federal Reserve.
Markets increasingly expected UK rates to remain elevated because rising energy prices threatened to push inflation higher.
However, the pound weakened later in the period after stronger-than-expected U.S. inflation and producer-price data reinforced expectations that the Fed would keep interest rates higher for longer.
Higher U.S. yields boosted demand for the dollar and pushed GBP/USD lower toward the 1.33 to 1.35 range.
Geopolitical tensions in the Middle East also influenced the exchange rate.
Concerns about oil supply disruptions raised global energy prices, supporting the dollar as a safe-haven currency while increasing inflation risks for the UK, which is more dependent on imported energy.
Finally, UK economic releases, particularly GDP and labour-market data, affected sentiment toward sterling.
Stronger UK growth expectations briefly supported the currency, although fears of slowing activity limited gains.
