Developments in Financial and Commodity Markets

The recent rally in equity markets despite geopolitical and economic stress, is a clear indicator of late-cycle dynamics, where rising financialisation and liquidity-driven momentum can temporarily override weakening underlying fundamentals. IMF analysis shows that the Iran conflict has triggered a stagflationary shock, lifting inflation expectations while simultaneously reducing global growth and widening regional divergence. The UAEʼs exit from OPEC signals increasing fragmentation in oil coordination, with near-term price stability supported by rerouting capacity, but a structurally higher risk of volatility and geopolitical premiums once demand normalises. Meanwhile, speculation around a potential Anthropic IPO reflects ongoing momentum in the AI sector driven by enterprise adoption and modest revenue growth, but offset by extreme capital intensity, intensifying competition, regulatory scrutiny, and uncertain long-term profitability.

 

According to a statement by ECB President Christine Lagarde, the central bank stands ready to tighten policy even if inflationary pressures prove temporary. In a recent poll, Reuters economists forecast a notable rise in euro-zone inflationary pressures due to the ongoing conflict in the Middle East. Against this backdrop, the ECB appears intent on avoiding a repeat of the delayed policy response seen in 2022. While a rate hike could potentially put downward pressure on gold prices due to the opportunity cost of holding gold versus interest-bearing assets as well as possible euro appreciation, recent gold price movements have been influenced more by real interest rates and inflation-hedging demand than by nominal policy rates alone.

A Bundesbank study looking at how a 25-bp monetary policy tightening transmits through financial intermediaries found that banks showed earlier and more persistent declines, while the response of non-banks was more varied. More importantly, firms partially offset reduced bank lending by shifting to alternative financing, thereby dampening the overall impact on GDP and inflation. This suggests that, while restrictive monetary policy remains effective, its transmission is weaker in more market-based financial systems. The near-term implication is that if the ECB does tighten policy in response to inflation from supply disruptions in the Strait of Hormuz, achieving the desired disinflationary effect may require stronger or more prolonged tightening. For gold, this creates a nuanced outlook: while higher rates can weigh on prices, a less effective transmission mechanism resulting in persistent inflation risks could sustain demand for gold as a hedge.

 

Precious Metals and Commodities

Precious metals are still finding their footing amid the ongoing geopolitical tensions involving Iran, while fertiliser shortages continue to put pressure on agricultural prices. Oil prices are expected to remain around current levels as alternative supply routes are able to marginally offset shortages caused by the Strait of Hormuz disruption. Over the long term, the outlook for precious metals and commodities remains bullish.

 

Market Risk Signal

 

Index Performance in Gold Terms

Measuring equities in gold terms strips out currency debasement and monetary distortion, revealing whether gains truly increased purchasing power or merely reflected inflation and foreign-exchange effects. Performance is calculated using gold priced in each indexʼs native currency.

Year-to-date performance of equity benchmarks in gold terms:

US	S&P 500	+0.34%
UK	FTSE 100	-1.93%
Spain	IBEX 35	-3.67%
Germany:	DAX	-6.16%
Switzerland:	SMI	-5.67%

 

27 May 2026 | Categories: Gold, Silver, Platinum, Palladium

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