LIVE MARKETS-Drivers behind gold rally still powerful despite pullback - Barclays

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DRIVERS BEHIND GOLD RALLY STILL POWERFUL DESPITE PULLBACK - BARCLAYS

Monday kicked off with more losses in gold after Friday's near-10% drop, though by mid-morning in Europe daily losses have moderated to just 2.2% XAU=.

According to Barclays, the most recent pullback does not negate broader factors at play behind its recent blistering rally - which they say remain "powerful and persistent". Indeed, the drawdown in recent days barely dented gold's stellar 2026 performance so far. It is still up 10% YTD.

"Despite screens flashing “overvalued,” a certain amount of premium to gold’s fair value (c. $4000 on our model) looks durable, suggesting gold is not a bubble," write Barclays equity strats in a Monday note.

They say past cycles show misalignments to gold's fair value can go on for years, and it comes against a backdrop of inflation pushing fair value higher and firm central bank demand.

"Add mounting concerns around policy credibility and fiat stability, and the backdrop supports elevated pricing."

They say markets might be taking Kevin Warsh’s nomination as Fed Chair as one of short-term "institutional continuity", but policy volatility and its challenges will probably stick around.

Short-term price consolidation in spot prices - as well as gold miners and ETFs - is a reasonable expectation given positioning is stretched and dollar shorts are crowded.

"Medium-term drivers – ongoing reserve diversification, strategic autonomy, firmer global growth and buoyant commodity trends – suggest gold-linked assets and miners can re-rate further after near-term consolidation," says Barclays.

They flag that the three previous gold bull markets since the 1970s saw gold peak 200%-400% above starting levels for up to four years. So far, gold is up about 170% from the start of the bull market in October 2023.

"Today’s set up – rate cuts, fiscal expansion, QE, fiat debasement and de-dollarisation – is likely to keep investment demand firm," they write, also nodding to central bank reserve diversification and the support of private buyers.

Barclays favours London-listed Endeavour Mining EDV.L and Hochschild HOCM.L.

(Lucy Raitano)

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