Current gold prices provide a better entry point as central bank demand supports the outlook, says Tata Mutual Fund

Current gold prices may offer a more attractive entry point for long-term investors after the precious metal underwent a significant correction in 2026. Tata Mutual Fund said the recent decline has been driven largely by macroeconomic factors, while the structural factors supporting gold remain intact.

Gold peaked at approximately US$5,595/oz in January 2026 and is currently trading around US$4,138/oz. This represents a correction of approximately 26% from the peak.

According to Tata Mutual Fund, the recent correction appears to have been driven more by macro factors than by any deterioration in gold’s structural fundamentals. Higher US Treasury yields and a stronger US dollar have been the key factors behind the decline. Historically, both factors have been negative for gold prices.

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However, Tata Mutual Fund highlighted that the structural drivers that supported gold’s rise over the last three years remain intact. These include continued central bank buying, fiscal concerns, geopolitical uncertainty and reserve diversification trends.

For investors who missed the earlier rally, Tata Mutual Fund said current levels offer a significantly better entry point than at the start of the year. The fund house added that the medium-term outlook for gold continues to be supported by central bank demand, fiscal risks and geopolitical uncertainty.
The most significant trends in the gold market have been the shift in demand dynamics from ETFs to central banks, and despite substantial ETF outflows in 2022–23, gold prices remained resilient, supported by strong central bank purchases that effectively established a structural demand floor. In 2025, investment demand rebounded sharply as ETF inflows surged, while central bank buying remained robust. This combination pushed total gold demand, marking a key milestone for the market.

After this period and with the onset of the US-Iran conflict, global gold ETFs witnessed sharp outflows from March 26. However, global ETF flows are showing early signs of stabilisation from July-26 onwards.

Central bank buying continued to provide a strong foundation of support for gold prices as they purchased 289 tonnes of gold in Q2 2026 alone, and the full-year purchases are expected at 700-900 tonnes, well above the pre-2022 annual average of approximately 400-500 tonnes.

The fund house said reserve diversification away from US-dollar assets remains an ongoing theme, led by China and several emerging market central banks, which provides a structural source of demand that is less sensitive to short-term price movements.

The ongoing tensions in the Middle East, strategic competition between the US and China, and increasing fragmentation of the global economic order continue to support demand for safe haven assets.

While mentioning the fiscal ceiling, the fund house said that US government debt has crossed US$40 trillion and the fiscal deficit is running at approximately 6-7% of GDP, among the highest levels outside recessionary periods.

The implication of this is that rising debt and deficits raise concerns around currency debasement, sovereign credit quality and long-term purchasing power, all of which may lead to higher allocation to gold being a store of value and insurance.

China remains a key demand driver as Chinese gold imports have reached record levels this year, exceeding 1,000 tonnes in 2026, already exceeding full-year 2025 volumes and strong retail demand, ETF inflows and central bank purchases continue to support the physical gold market.

Silver

Silver could remain supported over the long term as demand continues to outpace available supply. Tata Mutual Fund said 2026 is on track to become the sixth consecutive year of silver supply deficit, with industrial demand accounting for the majority of overall consumption.

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Industrial demand for silver has risen steadily between 2021 and 2024, strengthening the structural demand outlook for the precious metal. With supply remaining constrained, the persistent deficit could continue to support silver prices over the longer term.

China’s role in the global silver supply chain is another important factor, according to Tata Mutual Fund. China holds around 11% of global silver reserves and controls around 60-70% of refining capacity, giving it significant influence over the supply side of the silver value chain.

Tata Mutual Fund said China’s efforts to tighten control over silver supply chains and prioritise domestic availability could create constraints in global silver markets, given the country’s significant role in refining and processing.

The combination of a persistent global supply deficit, rising industrial demand and China’s influence over refining capacity continues to support a constructive long-term outlook for silver, Tata Mutual Fund said. However, the fund house noted that silver prices could remain volatile in the near term.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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