Gold Under Pressure: War, Yields, and a New Kind of Gold Rush in China

May 18, 2026

Gold has had a turbulent few weeks and if you've been watching the price ticker, you'll know the ride is far from over. Between Middle East conflict, surging bond yields, a stronger US dollar, and an unexpected boom in China's scrap gold industry, the precious metals market is being pulled in multiple directions at once. Here's what's going on, and what it means for investors, savers, and anyone who owns a gold ring they've been meaning to dust off.

The Price Drop: What Happened?

After touching dizzying highs above $5,000 per ounce earlier this year, gold has pulled back sharply. As of this Monday, spot gold is trading near $4,480–$4,495 per ounce — down around 15% from its peak. Silver has taken an even harder hit, falling more than 2.5% to around $74 per ounce after dropping over 5% last week.

So what went wrong for gold? A few things collided at once.

Bond yields surged. The US 10-year Treasury yield spiked to near a one-year high at around 4.54%, making gold, which pays no interest, a less attractive place to park money. When yields rise, the opportunity cost of holding bullion climbs with them. "We're seeing not just a US increase, but a global increase in bond yield rates," noted Edward Meir, an analyst at Marex.

The dollar strengthened. A stronger greenback makes gold more expensive for overseas buyers, dampening demand. Last week saw the dollar's best weekly gain in two months.

The Fed is stuck. Here's the paradox gripping the market: the ongoing Middle East conflict has sent oil prices soaring, which in turn is fuelling inflation. That inflation is keeping the US Federal Reserve from cutting interest rates, and markets have now almost entirely ruled out a rate cut this year. Some traders are even pricing in the possibility of a rate hike by December. Higher-for-longer rates are bad news for non-yielding assets like gold.

The War Premium That Wasn't

Here's something counterintuitive: gold is supposed to be a safe-haven asset. Wars and geopolitical crises typically send investors flooding into bullion. Yet the ongoing US-Iran conflict — which began in late February, has actually weighed on gold.

Why? Because this war's primary effect has been to dramatically push up oil prices, which then drove inflation higher, which then froze the Federal Reserve in place. The war didn't create a flight to safety; it created an inflation spiral that made gold less attractive relative to yield-bearing assets.

There was a brief flicker of hope. When Axios reported that the US and Iran were close to a peace agreement, gold and silver both spiked, not because investors wanted safety, but because a Hormuz reopening would cool oil prices, ease inflation, and give the Fed room to cut rates. The market is now trading peace rumours as carefully as it watches war headlines.

The Strait of Hormuz, the narrow waterway through which roughly 20% of the world's traded oil flows, remains effectively closed. A drone attack over the weekend that ignited a fire at a nuclear plant in the UAE has kept tensions high. President Trump has renewed threats against Iran, and there is no agreement in sight.

Silver: Caught in the Crossfire

Silver has had it rougher than gold lately. Down more than 5% last week and another 2.5% on Monday, silver is feeling the double squeeze of rising yields and weaker industrial demand signals. India, one of the world's largest silver consumers, has tightened its silver import regulations in a bid to defend its currency, which has fallen to an all-time low. That has added further downward pressure on the grey metal.

The China Story: A Gold Rush in Reverse

While prices have dropped from their peaks, there's a fascinating story unfolding in China that tells you just how dramatically this commodity cycle has shifted consumer behaviour.

China's gold recycling industry is booming, and not in a small way. Business registrations in the sector surged nearly 79% in 2025, reaching 740 new firms — the fastest annual expansion in a decade. The trend has only accelerated into 2026, with 488 additional firms registered in less than five months, already exceeding half of last year's total.

What does a gold recycling firm do? Essentially, it buys old jewellery, coins, and scrap bullion from households and businesses, then resells it back into the market. And Chinese consumers are lining up to participate.

In Shanghai malls, people have been queuing for over an hour to use automated gold recycling machines, sophisticated kiosks where a robotic arm moves your scrap jewellery onto a scale and a light-wave device measures its purity on the spot. People are bringing in family heirlooms, late grandparents' rings, commemorative coins, even jade-adorned bangles. For some, like the elderly women supplementing their pensions, it's a pragmatic windfall. For others, it's simply cashing in while the price is right.

This behaviour reflects a broader shift in how Chinese consumers are relating to gold. Jewellery buying has actually collapsed, demand was "strangled" by record high prices, according to the World Gold Council. But investment-grade bullion buying has surged. Chinese retail investors have increasingly moved from buying gold jewellery as a quasi-investment to buying actual gold bars and coins directly. Gold bar and coin demand in China boomed in Q1 2026, with Asian investors described as the "primary drivers" of a 42% year-on-year rise in global bar and coin demand.

The recycling boom highlights both sides of this trend: consumers are selling old jewellery (which was often bought as investment) and using the proceeds to buy proper investment-grade bullion, or simply pocketing the windfall.

What the Experts Are Saying

Despite the current turbulence, the longer-term outlook from major banks remains bullish:

• Goldman Sachs holds its year-end 2026 gold target at $5,400 per ounce, arguing that once the market accepts the Fed won't be able to tighten sufficiently, real yields will compress and gold will re-accelerate.

• J.P. Morgan forecasts gold to average $5,055 per ounce in Q4 2026, rising toward $5,400 by end-2027, underpinned by continued central bank buying and strong investor demand.

• ANZ Group analysts expect central banks to eventually shift toward monetary easing as growth concerns mount, and that would be strongly supportive for gold.

• LiteFinance forecasts gold could reach the $5,400–$6,000 range by year-end, with geopolitics and central bank reserve accumulation as the key drivers.

The World Gold Council notes that global gold demand hit a record high in Q1 2026, with total demand including OTC investment rising 2% year-on-year to 1,230.9 tonnes. Central banks have now been buying more than 1,000 tonnes per year for three consecutive years — a structural trend that analysts expect to continue.

The Bottom Line

Gold is caught in a paradox of its own making. The very forces that should be sending it higher, war, uncertainty, inflationary pressure, are also keeping interest rates elevated, which caps its upside. The metal has lost around 15% from its highs, and silver has been hit even harder.

But the structural story hasn't changed. Central banks are still buying. Chinese investors are still piling into bullion bars. The Fed will eventually face a growth slowdown that forces its hand on rates. And geopolitical risk isn't going away.

For now, the gold market is in a holding pattern, navigating inflation fears, bond yield pressure, and Middle East uncertainty on a day-by-day basis. Whether you're an investor watching the charts or a Shanghai grandmother eyeing that old jewellery box, gold remains one of the most watched and debated assets on earth.

And if peace breaks out in the Middle East? Expect gold to surge, not because of safety demand, but because falling oil prices would finally give the Fed the room it needs to cut. That's the world we're living in right now.

Prices and data current as of 18 May 2026. This article is for informational purposes only and does not constitute financial advice.