Gold may face choppy recovery in the near-term but continued central bank buying, reserve diversification and global fiscal risks should provide longer term support. We remain constructive on its outlook.

Christopher Wong
Executive Director,
FX Strategist,
OCBC Group Research,
OCBC

Oil

Renewed US-Iran tensions reignited the oil market risk premium, pushing prices sharply higher in July, after Brent briefly retreated towards US$70/bbl in June. As supply risks threaten regional energy flows, the market is becoming increasingly reliant on commercial inventories and strategic reserves. Concerns are also spreading beyond the Strait of Hormuz to Saudi Arabia’s Red Sea export corridor, raising questions about the resilience of alternative routes. Brent futures curve is now trading above our forecasts of US$75/bbl for 4Q26 and US$71/bbl by mid-2027. Strong crude time spreads, healthy refining margins and firmer outright prices leave the market vulnerable to further upside should disruptions intensify.

While risks remain two-sided, the balance is skewed higher. The surge in oil exports following the US-Iran memorandum of understanding highlighted how quickly prices can unwind when shipping conditions improve. Conversely, renewed attacks on tankers or energy infrastructure could push Brent back above US$100/bbl, near levels reached during the peak of the conflict in March- April. Refined products, particularly gasoline and diesel, have outperformed crude, amplifying inflation risks.

Looking ahead, Gulf Cooperation Council producers are likely to accelerate investment in export routes that bypass Hormuz. However, while Saudi Arabia and the UAE have alternative pipeline infrastructure, Kuwait, Qatar and Bahrain remain highly exposed to any prolonged disruption in the strait.

Precious Metals

Gold

Gold’s near-term recovery may remain uneven as elevated real yields, firmer US Dollar (USD) and lingering Federal Reserve tightening risks continue to constrain demand.

That said, we are cautious about extrapolating the decline from the January high. A meaningful degree of Fed tightening risk is already reflected in markets, while investor positioning in gold has become less extended. The hurdle for another large and sustained decline is therefore higher, unless the Fed tightens more aggressively than expected, oil prices rise significantly further or gold ETF liquidation deepens. Conversely, a stabilisation in real yields, renewed USD weakness or a recovery in ETF demand could allow gold to regain momentum, particularly as the de-dollarisation and currency-debasement narratives reassert themselves.

Over the medium term, the core support for gold remains in place. Central-bank accumulation is likely to continue as reserve managers seek diversification, liquidity and protection against sanctions and geopolitical risks. Persistent fiscal deficits, high government debt and uncertainty over the long-term role of traditional reserve currencies should also sustain demand for gold as a strategic reserve asset. These forces may not prevent shorter-term corrections but should reinforce underlying support for gold prices over time. The outlook is therefore cautious near term, but not structurally bearish.

Silver

Silver’s struggle largely reflected the same forces weighing on gold: higher real yields, a firmer USD and persistent expectations that the Fed may still tighten policy. Oil-driven inflation concern does not help the macro backdrop while silver’s higher-beta characteristics amplified gold’s swings. 

The near-term path is likely to remain two-way. A moderation in US inflation, fading Fed hike expectations and renewed investment flows would allow silver to recover more forcefully. Downside risks include persistent rise in real yields and the USD, further investor liquidation, weaker global industrial activity and faster-than-expected substitution away from silver in solar applications. 

The structural deficit should help cushion weakness, but as recent price action has shown, it cannot deter valuation resets when the macro backdrop turns against precious metals. We calibrated silver forecasts lower to reflect the interim challenging environment.

Currency

We continue to expect a divided USD environment. On one side, policy support should allow gradual CNY appreciation to continue. On the other, the USD is likely to remain well supported against low-yielding G10 currencies such as the EUR. We remain cautious on the EUR despite a recent improvement in eurozone economic surprises, which may reflect a lower starting bar for expectations rather than a meaningful shift in fundamentals. 

Meanwhile, another round of currency intervention is unlikely to deliver sustained JPY strength unless Bank of Japan signals a more aggressive rate hike path and if there are policies encouraging capital repatriation into domestic assets.

US Dollar (USD)

The renewed escalation of the Iran conflict has once again seen energy importers underperform and exporters outperform, although the divergence has been less pronounced than during the March-April period. Amidst continued volatility in energy prices, the USD struggled to benefit from improved terms of trade. Instead, markets have focused on the Federal Reserve's (Fed) July decision to keep rates unchanged, which was perceived as dovish. While Fed Chair Kevin Warsh reiterated the importance of restoring the Fed's inflation-fighting credibility after a prolonged period of missing its target, he stopped short of providing a clear policy framework or reaction function. 

This pared back some of the credibility gains the Fed earned following the June meeting. That said, a still-resilient labour market or evidence of stalling disinflation could increase pressure on the Fed to reinforce its anti-inflation credentials. Incoming inflation, employment reports will be critical ahead of the September FOMC meeting. In the near term, limited policy guidance ahead of September may keep the USD on the back foot and continue to support carry trades. However, we expect underlying US economic resilience to eventually bring Fed tightening risks back into focus, supporting a return to our moderately bullish USD view.

Asia ex-Japan currencies

Asian currencies are likely to trade mixed in the near term rather than move in the same direction. Elevated oil prices and still-high US interest rates remain headwinds for parts of the region, particularly for economies that rely heavily on energy imports. At the same time, differences in domestic policy, capital flows and economic resilience should continue to drive uneven performance across currencies. We expect selected USDAXJ currency pairs to remain supported through 3Q2026, before turning gradually lower from around 4Q2026 into 2027, premise on expectation for oil prices to moderate, US tightening risks to recede and market sentiment to stabilise.

Renminbi (RMB)

RMB forecasts were revised firmer to reflect recent gains. However, we continue to expect appreciation to be gradual and measured, as policymakers are likely to favour orderly currency moves rather than a rapid adjustment. That said, if China’s growth momentum continues to soften, markets may eventually question whether RMB’s relative outperformance remains fundamentally justified.

Singapore Dollar (SGD)

A small upward adjustment was made to our SGD forecasts following Monetary Authority of Singapore’ earlier policy tightening. This should provide modest support over time, although the scope for sharp gains may remain limited unless the US Dollar weakens more materially.