Global gold prices extended their rally in February, climbing another five per cent during the month to reach about $5,222 per ounce, as a weakening US dollar, lower Treasury yields and strong Asian demand combined to propel the precious metal to fresh record territory.
Data from the World Gold Council (WGC) shows that the metal has now gained 20 per cent year-to-date, consolidating its position as one of the best-performing global assets in early 2026.
The rise underscores renewed investor appetite for safe-haven assets amid currency volatility, shifting capital flows and growing geopolitical tensions.
Despite the strong dollar-denominated performance, gold returns varied across currencies. An appreciation of the Indian rupee following tariff relief measures between India and the United States caused local gold prices in India to decline by about 3.5 per cent during the month.
Similarly, strengthening in the Chinese renminbi pushed local gold prices lower in China, highlighting how currency movements can alter investor returns even during a global rally in the underlying metal.
Dollar weakness fuels rally
According to the World Gold Council’s Gold Return Attribution Model (GRAM), the February rally was largely driven by a weaker US dollar, particularly against emerging market currencies, alongside a decline in yields on the 10-year US Treasury bond.
Lower yields reduce the opportunity cost of holding non-yielding assets such as gold, making the metal more attractive to investors seeking portfolio protection.
However, analysts noted that the model could not fully explain the strength of the rally, leaving a significant positive residual in the data.
Evidence of this demand was visible in trading patterns during Asian market hours and elevated volumes on the Shanghai Futures Exchange.
Market observers say the heavy buying during Asian sessions likely prevented a larger decline in prices earlier in February when implied market volatility dropped sharply after the strong January surge.
ETF inflows highlight investor demand
Investor interest in gold-backed exchange-traded funds (ETFs) also strengthened during the period.
Gold ETFs recorded net inflows of about $5.3 billion in February, adding approximately 26 tonnes of gold to holdings globally.
The majority of the inflows were driven by investors in North America and Asia, reflecting heightened portfolio diversification strategies in those regions.
Europe, however, recorded outflows of about $1.8 billion, equivalent to roughly 13 tonnes of gold.
Analysts attributed the European withdrawals largely to profit-taking after the dramatic price rally seen in January.
Meanwhile, managed money net long positions on COMEX futures contracts fell sharply at the beginning of February before gradually recovering toward the end of the month, indicating cautious positioning by speculative traders.
Structural pressures on the dollar
Looking ahead, market strategists believe the trajectory of the US dollar will play a decisive role in shaping gold prices over the coming months.
The US Dollar Index (DXY), which tracks the greenback against major global currencies, narrowly avoided a technical breakdown in January due to stronger-than-expected economic data and supportive futures positioning.
But analysts believe this stability could prove temporary.
Several structural factors point toward potential medium-term dollar weakness.
One of the most prominent is valuation. Both the US dollar and US equities remain expensive relative to historical levels and compared with other developed markets.
Using metrics such as the Real Effective Exchange Rate (REER) and price-to-sales ratios, analysts argue that the US market continues to trade at a premium relative to European and Japanese equities.
This has historically increased the risk of capital rotation toward alternative markets offering better valuations.
Global capital flows shifting
Another factor weighing on the dollar outlook is the gradual erosion of what analysts describe as the “double reward” for international investors.
For much of the past decade, foreign investors enjoyed both strong US equity returns and a strengthening dollar.
That combination boosted global appetite for US assets.
However, improving economic prospects in Europe and reform momentum in Japan are beginning to present viable alternatives.
Fiscal expansion in Germany, combined with attractive equity valuations across European markets, has encouraged investors to consider reallocating capital away from US assets.
At the same time, structural reforms and corporate governance improvements in Japan have boosted investor confidence in its equity markets.
Because European and Japanese financial markets are considerably smaller than the US market, even modest capital reallocations could generate significant currency movements and reinforce a downward trend in the dollar.
Historically, previous US dollar bear markets have been long-lasting and often front-loaded with sharp early declines.
Such movements can be reinforced by investor outflows from US equities, which tend to coincide with periods of weaker currency performance.
Implications for gold markets
For gold investors, these developments are broadly supportive.
Dollar weakness, heightened geopolitical risk and volatile capital flows typically create favourable conditions for gold prices.
Central banks around the world have also continued diversifying their reserve portfolios toward gold, a trend that provides structural demand for the metal.
However, analysts caution that some risks remain.
The sharp rise in gold prices may deter certain investors concerned about entering the market at elevated levels.
Additionally, stronger economic growth in Europe or Japan could reduce demand for gold in those regions if equity markets deliver attractive returns.
This dynamic may already be visible in the February outflows from European gold ETFs.
Geopolitical tensions add momentum
Geopolitical developments have also contributed to renewed volatility in global markets.
A fresh conflict in the Middle East that escalated toward the end of February triggered immediate reactions across asset classes.
Oil prices surged, the US dollar strengthened briefly and Treasury yields softened as investors sought safe-haven assets.
Gold responded sharply, rising nearly five per cent across two trading sessions in early March.
Historically, gold has posted gains in roughly two-thirds of major geopolitical stress events, reinforcing its reputation as a defensive asset.
However, analysts caution that the metal’s performance in the weeks following geopolitical shocks can vary significantly.
Historical data shows that gold’s two-week returns after such events have ranged from gains of about eight per cent to losses of around three per cent.
Outlook remains bullish
Despite these uncertainties, many analysts remain optimistic about the outlook for gold.
The combination of currency volatility, geopolitical risks and structural shifts in global capital flows is expected to keep investor demand elevated.
If the US dollar enters a sustained period of weakness—as some strategists anticipate—gold could continue its upward trajectory through the rest of the year.
For now, the precious metal’s 20 per cent rally in the first two months of 2026 highlights its enduring appeal as both a store of value and a hedge against global economic uncertainty.
