Summary
l SPDR Gold Shares ETF, the gold bullion buyer, has seen weak YTD performance in line with a pullback in gold prices. But don't write it off just yet.
l While there's no denying that macro risks like persistent inflation, higher expected interest rates, and a strong USD are challenging, easing oil prices and, with that, inflation, can offer upside potential.
l Gold price projections from leading forecasters are also encouraging and suggest that by year-end, gold prices might match up to the gains forecast for the S&P 500.
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I last wrote about the gold bullion buyer SPDR Gold Shares ETF (GLD) at the start of 2024. Needless to say, it has come a long way since, with gains of over 90%. Despite the drop in gold prices in 2026. Admittedly, the drop isn't a total disaster at under 8% YTD, though.
However, gold does look much worse in comparison with the S&P 500 (SP500) (SPY), which has gained 10% YTD instead. The question now is, can gold stage a comeback in H2 2026? Or is it a safe haven investment for the longer term? Here, I consider both the factors working for and against it to make an assessment.
Inflation Relieves...
The recent softening in inflation certainly works in gold's favour. It's no coincidence that the oil price shock following the start of the US-Iran war and gold's descent came hand in hand. With crude prices rising in March and surpassing USD 100/bbl in early April, it was a given that inflation would rise. And that's indeed what happened. From 2.4% YoY in February, CPI inflation in the US jumped to 3.3% YoY in March and then to 4.2% YoY in May.
In a complete turnaround in expectations, the increase in inflation brought increased speculation of a rate hike in 2026 with it, especially as prospects for the US economy still look alright. The labor market still looks relatively resilient, and the Fed forecasts GDP growth to be at trend levels this year.
The Fed's latest hawkish monetary policy statement only strengthened the likelihood of higher interest rates, raising the opportunity cost of holding gold. It's little wonder then that gold continues to trend down, having already dropped by 24% since the time the war started.
However, more recently, things have begun to look up for the metal. As some semblance of peace returned between the warring countries, oil prices dropped as dramatically as they had risen. By early July, Brent crude had dropped to pre-war prices, falling by 38% from the highs of April. Commensurately, inflation for June also subsided to 3.5% YoY.
... Though Some Risks Remain
With peace being tenuous, however, crude prices have started rising again and are now close to USD 90/bbl. In other words, the risk isn't entirely met yet. At the same time, there's hope that it can come about. It's also worth noting that the US Energy Information Agency [EIA] has reduced its crude and retail gasoline price forecasts for both 2026 and 2027 substantially earlier this month. This is an encouraging sign indicating that fuel prices and inflation can remain in check, though fuel prices need to be watched closely.
Positive Gold Price Forecasts
Forecasters are certainly positive on gold prices. HSBC, which is the least optimistic of the three forecasters mentioned here, anticipates an average gold price of USD 4,560/oz. The figure is 14% higher than the current price, with HSBC noting that supporting factors like "fiscal deficit concerns, economic uncertainty, and sovereign debt burdens" still remain in place.
From its present trading levels of around USD 4,000/oz, the price is expected to jump even higher, by ~23%, to USD 4,900/oz, according to Goldman Sachs, with central bank purchases playing a role. J.P. Morgan is even more optimistic. It sees the yellow metal at USD 6,000/oz in Q4 2026, representing a 50% increase from current levels.
Dollar Index Can Play Spoilsport
There is still one factor to look out for, though. And that's the appreciation in the US dollar. While historically crude and USD have had an inverse relationship, that has changed in recent years, both as the US has become a net exporter of oil. As oil prices rose, so did the dollar index, which is up by 3.3% since the start of the war.
However, as gold became pricier in dollar terms, it could have turned buyers shy too, impacting gold prices as a result. At least one gold buyer, which is central banks, has shown a smaller appetite this year, according to J. P. Morgan. The bank does note, though, that China's purchases might be going unrecorded.
The dollar index can remain firm over the remainder of the year as well, as some risk of interest rate increases persists. After all, as per the Fed's latest economic projections, the Fed funds rate is now forecast to be 25bps higher than current levels. This is supported by higher forecasts for both the PCE inflation and core PCE inflation in the last FOMC meeting as well.
Can Gold Outperform the S&P 500 This Year?
The real question is whether gold can perform better than the S&P 500 this year, which can make it a worthwhile short-term investment. The answer is, it's possible but far from guaranteed.
If the gold price ends the year at Goldman Sachs's forecast of USD 4,900/oz, the metal would make gains of 22% this year. My latest analysis of the S&P 500 showed that it had some 13% upside remaining for the year in late June. In absolute terms, this amounts to a year-end level of 8,330, which is also around a 22% increase over the year.
The S&P 500 has the advantage of an early lead, though. In that, it has already realised a 10% upside. On the other hand, gold also has to make up for the pullback seen. Much of what happens will depend on how the macroeconomy shapes up. Any sudden weakness can give gold a lead at the cost of the S&P 500, but so can just a simple weakening in fuel prices and inflation expectations.
What Next?
The key takeaway here, though, is that gold has the potential to end up no worse off than the S&P 500 this year. With the index set to make healthy gains, this won't be a small feat. Especially not after the weakness seen so far.
The odds aren't entirely in the metal's favour, though. Sustained risks of higher inflation, interest rates, and a firm USD can all work against it. But on the other hand, the possibility of a truce can result in a rally and reduce inflation, bringing gold's long-term advantages as a hedge against doomsday into focus. The forecasts are certainly in its favour. I'm going with a Buy rating.
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