James Steel, Chief Precious Metals Analyst at HSBC, expects volatility to be a defining feature of the precious metals market in 2026, as Federal Reserve policy and exposure to the U.S. dollar continue to shape demand dynamics.
In an interview with CNBC on Sunday evening, Steel was asked why gold prices have not responded to the recent decline in the U.S. 10-year Treasury yield, which fell from 4.30% a few days ago to 4.00%.
“You’ve hit the nail on the head. The shift happened in 2022. Before that, if we looked at the real 10-year yield — meaning the yield adjusted for inflation — we would see a strong inverse correlation with gold, going back to the end of the Bretton Woods system, when gold was decoupled from the dollar,” Steel said.
He explained that this relationship has largely broken down in recent years.
“Gold is no longer as sensitive to real interest rates, particularly 10-year yields, as it used to be. That change has coincided with increased retail participation in the market, heightened geopolitical risks, and strong central bank buying,” he added.
“I’m not saying that relationship will never return, but it is certainly not as strong as it once was.”
Steel was also asked whether the nomination of Kevin Warsh is linked to the recent decline in interest rates without a corresponding rise in gold prices, given his stated desire to reduce the Federal Reserve’s balance sheet.
“In the case of the Federal Reserve, as long as it maintains its independence — and I believe it will — that is the key issue. Any threat to central bank independence would push gold prices higher,” Steel replied.
He was further asked about the extent to which gold’s role as a hedge against currency depreciation has contributed to its price gains.
“In the case of currency depreciation, we don’t look at it exactly that way. We believe the dollar will remain the world’s reserve currency for the foreseeable future — and by that, we mean for a very long time. But that doesn’t mean every central bank needs to hold such large amounts of dollars. One way to reduce exposure to the dollar is to buy gold.”
He added that this factor has been a significant driver of central bank purchases, which since 2022 have ranged between two and three times the average levels seen over the previous decade.
Steel also shared his view on the apparent lack of strong fund flows into the Europe, Middle East, and Africa (EMEA) region or into gold, at a time when the artificial intelligence sector continues to reshape broader equity markets.
“That was happening until fairly recently,” he said. “The market has delivered substantial gains over the past two years. To put it in perspective, the previous long-standing peak was $850 in January 1980, and when we surpassed that level, there was a lot of discussion about gold reaching new all-time highs.”
“I always prefer to look at it in real, inflation-adjusted terms,” Steel continued. “In today’s dollars, that $850 would be roughly $3,400. We exceeded that level in April. Gold has set a series of new records, and the fact that it hasn’t surged dramatically in the most recent period does not necessarily undermine the broader bull market.”
“Let’s not forget, we’ve seen significant new inflows into the market and a sharp rally in January,” he said. “When markets move that quickly, volatility is inevitable. I believe volatility will be the defining theme for gold this year.”
“Just because gold is considered a safe haven and a high-quality asset doesn’t mean it won’t be volatile.”
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