HSBC has lowered its average gold price forecasts for 2026 and 2027, citing a stronger U.S. dollar and a shift in expectations for a more hawkish U.S. Federal Reserve, according to a Reuters report.

The bank reduced its average gold price forecast for 2026 to $4,560 per ounce from $4,864, while trimming its 2027 forecast to $4,925 from $5,000.

HSBC expects gold to trade in a range of $3,800 to $4,700 per ounce for the remainder of 2026, with the metal ending the year around $4,750. It also projects gold to finish 2027 at $5,025 per ounce.

Spot gold was trading near $4,100 per ounce as of 0730 GMT, down more than 20% from the record high of $5,594.82 reached on January 29. Reuters reported that the earlier rally was driven by inflation concerns linked to the Middle East conflict, which also contributed to expectations of a more hawkish monetary policy stance from the U.S. Federal Reserve.

According to Reuters, HSBC believes changing perceptions around U.S. monetary policy and the resulting strength in the U.S. dollar have been key drivers behind investor liquidation in gold holdings and the subsequent decline in prices.

The bank also noted that central bank purchases of gold have moderated after playing a significant role in supporting the precious metal's rally over recent years. However, it said long-term reserve diversification by central banks could continue to provide underlying support to prices.

HSBC added that the heavy outflows from gold-backed exchange-traded funds (ETFs) recorded during the first half of the year could partially reverse in the second half, offering some support to the market.

Despite lowering its forecasts, the bank believes downside risks for gold may be limited, as much of the market has already adjusted to a higher interest rate environment and a stronger U.S. dollar.

HSBC also sees several structural factors that supported gold before the Middle East conflict remaining intact, including concerns over widening fiscal deficits, economic uncertainty and elevated sovereign debt levels.

While geopolitical developments related to Iran could continue to pressure gold prices in the near term, HSBC believes any declines driven solely by those tensions are unlikely to be sustained over the longer term.