Precious Metals Quarterly Report February 2026 by Motilal Oswal Financial Services Ltd
Gold's extraordinary bull-run reached new heights in early 2026, decisively breaking through $5,000 barrier as a confluence of structural and cyclical forces aligned to create one of the most powerful precious-metal environments in modern history. Throughout 2025, global gold demand surpassed 4,800 tons, overwhelming mine production by more than 500 tons. This imbalance was driven primarily by central banks, which net-purchased around 1,000 tons for the fourth consecutive year-the most sustained official-sector accumulation since the collapse of Bretton Woods.
Investor participation increased significantly. Gold ETF holdings reversed multi-year outflows, with India emerging as a structural growth market. Assets under management in Indian gold ETFs surged to ?1,279 billion ($14.2 billion), lifting the country’s share of global ETF holdings from 1.9% to 2.5%. Simultaneously, COMEX and LBMA inventories declined 20–40% from 2024 peaks, dislocating the supply demand balance temporarily.
Macroeconomic stress intensified in parallel. U.S. national debt crossed $38 tln, with FY2026 Q1 deficits reaching $601 bln and annual interest costs nearing $1.1 tln—over 20% of tax revenues. Geopolitical flashpoints multiplied across Eastern Europe, Middle East, and Arctic, reinforcing gold’s role as a neutral reserve asset. All forces combined to lift gold prices by 67% in 2025, strongest annual performance since 1979, with early-2026 registering repeated all-time highs.
Historical Context and Patterns
Periods marked by fiscal excess, monetary erosion, and geopolitical instability have repeatedly produced transformative multi-year gold rallies. 1971 Nixon Shock dismantled the Bretton Woods system, triggering a +2,300% gold revaluation over the following decade. The 1979 Iranian Revolution and Soviet invasion of Afghanistan propelled prices +325% within two years as inflation surged to 13.5% and confidence in paper assets collapsed.
Global Financial Crisis followed a similar template. Despite initial liquidity stress, gold advanced +25% through 200dditional +30% during 2011 U.S. debt-ceiling crisis as quantitative easing, sovereign leverage, and political dysfunction reshaped capital allocation.
Across cycles, pattern is consistent: gold performs best when monetary credibility weakens and fiscal policy dominates, rather than during conventional growth slowdowns.
Real Rates and Gold: The Core Transmission Mechanism
Gold’s strongest long-term correlation is not with inflation alone, but with real interest rates. Over the past five decades, gold has exhibited correlation of ~-0.85 to U.S. 10-year real yields. When real rates fall below 1%—or turn negative—gold rallies tend to be powerful, durable, and broad-based. During 2025, U.S. real yields compressed from above 2% toward 1% as inflation volatility persisted and growth momentum weakened. Historically, such compression phases have coincided with 25–50% gold advances over 12–24 months. Crucially, real-rate suppression today is not cyclical but structural, driven by debt-service constraints and political pressure on central banks.
Unlike prior tightening cycles, policy normalization now encounters fiscal ceilings, making sustained positive real yields increasingly difficult to maintain. This structural instability materially lowers the opportunity cost of holding gold.
Despite U.S. real rates remaining positive for extended periods through 2023–2025, gold prices continued to trend higher, underscoring that real rates alone no longer serve as the dominant valuation anchor. One key explanation lies in quality and credibility of real yields. While headline real rates appeared positive, investors increasingly questioned their sustainability amid rising fiscal deficits, elevated debt servicing costs, and political pressure on monetary authorities. In such an environment, positive real rates were perceived as cyclical and policy-driven rather than structurally durable. Additionally, gold demand during this period was increasingly driven by central banks, geopolitical risk hedging, and reserve diversification, and physical market tightness— forces largely insensitive to marginal changes in real yields. As a result, gold transitioned from being primarily a real-rate-sensitive asset to a broader hedge against systemic risk and monetary credibility erosion. This decoupling explains why gold sustained its rally even in an environment that would historically have been considered unfavorable, reinforcing the structural nature of the current bull cycle.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
