For gold investors, the best approach in 2026 may be to do nothing

It looks increasingly like gold prices will sleep through 2026.

The euphoria of 2025 is behind us. Since then, gold has been hit with a double whammy: a hawkish Fed and weakening investment demand, including from central banks.

Gold has returned to its roots, with ETF flows and real yields on the 10-year US Treasury setting global gold prices again.

Until this war ends, gold prices will likely sleep. But holding gold rather than selling it looks like the better decision, as holding preserves optionality.

Central bank buying has slowed

In 2022, when Russia invaded Ukraine, something strange happened.

Gold ETFs around the world started emptying, interest rates globally started rising, and yet…

… the gold price stayed strong.

We know in hindsight what did it. Central banks, led by China, absorbed the ounces exiting gold ETFs and effectively wrote a put option on the market. They didn't like that the US government had politicised SWIFT to kick Russia out of it and reacted by moving from US dollar reserves into gold.

This matters today because in 2026, central banks have slowed their purchases meaningfully - especially since the US-Iran war started. The breadth of buying has narrowed too. Whereas in 2022 it was a broad consortium, today only China and Poland remain dip-buyers. The rest have turned their attention elsewhere, particularly to defending their own currencies.

ETFs and the Fed run the circuit again

With central bank interest weakening, gold has gone back to the old rulebook, where gold ETFs and the Fed drive prices. The two go together, because the marginal, price-setting ETF flow is fundamentally a Fed watcher.

We can see this relationship pretty clearly when we map real yields and the total ounces held by gold ETFs alongside the gold price. Gold ETFs shed 45 tonnes in the second quarter alone, and every basis point rise in US 10-year real yields has been worth roughly US$20/oz off the gold price since February.

Retail has left the building too

Retail investors globally have stepped back this year, particularly in India, where new import duties have pushed the World Gold Council to forecast a roughly 10% fall in demand, and in China, where the Shanghai gold premium has collapsed to nothing.

For long-term investors, this clearing of the deck is not the disaster it looks like. A smaller retail footprint means less momentum-chasing money in the price, and those who hold are well-placed for when the crowd returns.

Central banks are down but not out

Given the rules have changed, gold ETF investors might be wondering what to do. Our answer rests on the buyer that started all this: central banks are not leaving gold, their interest is just pausing.

The official sector remains committed to holding fewer US dollars. Look at the Fed's custodial accounts for foreign official institutions: US Treasuries have fallen to their lowest level since 2012.

On gold specifically, a recent World Gold Council survey showed a record 45% of central banks expect their own gold reserves to increase over the next 12 months.

It's also worth remembering how central banks allocate to gold. Most target a fixed percentage of total reserves, so when prices fall, the value of existing holdings as a share of the portfolio falls with them. That means falling gold prices - of the kind we've seen this year - can compel central banks to buy more, simply to get back to target.

It's going to take time

For gold to rally again, its core demand pillars - retail, ETFs, central banks - need to start firing. Most of that hinges on the Fed cutting rates, which is unlikely while the US-Iran conflict keeps energy prices, and ultimately inflation, high.

But we do think the Fed will ultimately be patient. And gold buying hasn't disappeared; it has been outranked by a war.

Which is why doing nothing is the active choice here, not the passive one. Selling now means crystallising the drawdown and surrendering optionality exactly as prices fall far enough to compel central banks back in.

About ETF Shares

ETF Shares is a low-cost index ETF issuer, based at the Macquarie University Incubator. We specialise in US-focused ETFs, such as the ETFS Magnificent 7+ ETF (ASX: HUGE) and ETFS US Quality ETF (ASX: BEST)