Global markets delivered a mixed performance in June as investors balanced improving geopolitical conditions against renewed concerns over inflation and interest rates. The sharp recovery that followed the easing of the US-Iran conflict began to lose momentum as profit-taking emerged across several asset classes, particularly gold, after its exceptional rally over the past two years.
The gradual reopening of the Strait of Hormuz and lower oil prices helped reduce fears of another energy-driven inflation shock. However, stronger-than-expected economic data, persistent inflation and a fragile cease fire, have led investors to scale back expectations for U.S. Federal Reserve interest-rate cuts.
As we enter the second half of 2026, market performance is likely to depend less on improving sentiment and more on economic fundamentals. Inflation, interest-rate policy, and corporate earnings will increasingly determine whether the current bull market can extend further.
Gold Enters Bear Market Due to Headwind from Higher Interest Rates
After one of the strongest rallies in decades, gold has officially entered its first bear market since 2022. Having reached an all-time high of $5,608 in January 2026, prices have since corrected by more than 25%, falling back towards the $4,000 level.
What makes the recent decline particularly unusual is that many of the factors traditionally supporting gold remain in place. Inflation remains elevated, geopolitical uncertainty has by no means disappeared, and governments continue to diversify their reserves into gold. Historically, such an environment would have supported further gains in gold prices. Instead, investors have witnessed one of the sharpest corrections in recent years.
The primary reason behind gold's weakness has been the resurgence of inflation, which has forced the U.S. Federal Reserve to delay interest-rate cuts. Unlike bonds, gold generates no income. As government bond yields become increasingly attractive, institutional investors have rotated part of their allocations away from gold and into fixed income, creating considerable selling pressure after gold's exceptional rally over the past two years.
This highlights an important point for investors. Gold is often viewed as an inflation hedge, but over shorter periods it tends to be more sensitive to real interest rates than inflation itself. When higher inflation leads to higher bond yields, the opportunity cost of holding gold rises, placing downward pressure on prices.
While higher interest rates present a meaningful short-term headwind, they do not fundamentally alter gold's longer-term investment thesis. Although higher bond yields may limit gold's upside in the near term, these structural trends remain supportive over the medium to long term.
Outlook for Gold: A Healthy Correction or a Structural Turning Point?
At present, I do not believe it has. However, the near-term environment has become more challenging as persistent inflation keeps interest rates elevated, limiting gold's ability to resume its previous upward momentum.
The aggressive purchases by central banks will help to maintain the floor of gold prices. Thanks to the lower gold prices, global central bank gold buying surged in May and June, led by Poland's 18-tonne May purchase, which boosted its year-to-date accumulation to 64 tons. The People's Bank of China aggressively expanded its buying streak by acquiring 10 tons in May and a massive 14.93 tons in June—its largest single-month purchase since 2023. Meanwhile, Singapore officially returned to the market with a 4-tonne net purchase in May.
For now, gold remains on my watchlist rather than an area for aggressive accumulation or selloff. I will continue monitoring whether inflation begins to moderate sufficiently for the Federal Reserve to resume its easing cycle. If interest rates remain elevated for longer than expected, gold could remain under pressure. Conversely, should inflation subside or concerns surrounding the U.S. fiscal position re-emerge, the structural drivers that have supported gold over the past two years could once again come to the forefront.
Portfolio Performance and Positioning Strategy
The portfolio delivered a mixed performance in June, reflecting the divergence between asset classes during the month. For the month of June, cash portfolio returned -0.59%, SRS returned -0.59%. In contrast, the CPF-IS portfolio outperformed with a return of +1.06%.
The primary drag on performance came from the sharp correction in gold. The decline weighed on both the Cash and SRS portfolios, which have meaningful allocations to gold as a strategic hedge. Interestingly, the CPF-IS portfolio was the best performer precisely because it has no exposure to gold. Due to CPF investment restrictions, gold funds are not available under the CPF Investment Scheme. Instead, that portion of the portfolio is allocated to Singapore equities, which performed well during the month. We are looking to maintain the current 60/40 allocation given the high uncertainty in the US Iran war, which has a possibility of returning to full blown blows and derailing the global economy.
For greater transparency, I have added the portfolio's average annual return to the factsheet, allowing investors to better assess its long-term performance. As a point of reference, Singapore's sovereign wealth fund, Temasek Holdings, recently reported a 10-year, 5-year annualised return of 7.1% and 4.6% In comparison, our all-weather portfolio has delivered a 10-year, 5-year annualised return of 7.33% and 6.05%, highlighting the consistency of its long-term investment strategy. Investors interested to find out how Temasek invest can check out this link.
Download Xeo's All-Weather Fund Factsheet here
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