Gold’s Stellar Rally Sets the Stage for 2026

Gold delivered one of its strongest performances in modern financial history in 2025 and has been one of the best performing asset classes. Spot gold prices surged 65% year-to-date, marking the metal’s best annual return since 1979. This extraordinary rally was driven by a powerful mix of geopolitical risk, economic uncertainty, a weaker US dollar, falling real yields, and a resurgence in both investor and central bank demand.

As we look ahead to 2026, the key question is whether gold can deliver another year of exceptional gains, and if the structural forces behind the rally remain in place. In our view, they do. While returns are likely to moderate, gold’s role as a strategic portfolio asset appears increasingly entrenched, with risks still skewed to the upside.

What Drove Gold Prices Higher in 2025?

Gold’s 2025 rally was driven not by a single catalyst but by a convergence of reinforcing forces. Heightened geopolitical and economic uncertainty played a central role, including tariffs, the ongoing war in Ukraine, sanctions risks, and growing concerns over US fiscal sustainability and institutional credibility.

At the same time, lower opportunity costs supported demand. Lower interest rates and a weaker dollar reduced the relative appeal of holding cash or bonds, prompting investors to revisit gold as a portfolio hedge.

Investor and Central Bank Demand Remain Key Pillars

This backdrop triggered renewed portfolio diversification. With bond returns uninspiring and equity valuations increasingly stretched, gold re-emerged as a preferred store of value. Investment demand rose across regions, supported by strong price momentum that attracted new market participants.

Central banks also continued their multi-year buying programme, diversifying reserves away from US dollar-denominated assets. Although purchases were slightly below record levels, they remained well above historical averages, providing strong support for prices.

Gold Regains Prominence as Real-Asset Demand Increases

After a month of consolidation gold broke above its previous resistance, reaching a fresh record high of $4,530 this week, supported by the combination of Fed easing, ongoing central bank demand, and persistent geopolitical uncertainty. Central banks in emerging markets have more than doubled their gold holdings since the global financial crisis, with buying accelerating after 2022 as reserve diversification away from dollar assets intensified. While official sector purchases have levelled off recently, there is little evidence of meaningful selling pressure.

The case for gold remains anchored in currency debasement risk, persistent fiscal deficits, and financial system fragility. More broadly, rising interest in real assets reflects concern that inflation risks are underpriced. Commodities beyond gold are beginning to break out of multi-year ranges, raising the prospect that demand could broaden further if allocations move even marginally from equities and bonds.

Central Bank Buying Supports Long-Term Gold Prices

Central bank demand remains one of the most powerful structural supports for gold. For a fifth consecutive year, diversification away from US dollar assets is underpinning gold.

Emerging market central banks continue to increase gold allocations as a hedge against sanctions risk, currency volatility, and rising sovereign debt. Given gold’s still modest share of global reserves, further accumulation remains likely.

ETF Flows and Investment Positioning

ETF flows are another key driver of gold price movements. After several years of net outflows, ETF demand rebounded strongly in 2025, tightening physical supply and reinforcing price momentum.

Retail demand has surged, particularly via ETFs in Europe and North America, without signs of the late-cycle capitulation that typically precedes major reversals. ETF inflows continue to build, reinforcing the idea that gold is being used less as a short-term hedge and more as a structural allocation, so the rally has been underpinned by structural demand rather than speculative excess.

Importantly, total ETF holdings remain below previous cycle peaks, suggesting the market is not overcrowded. Even modest portfolio reallocations could have a disproportionate impact on prices.

Why Gold’s Bull Market Is Likely to Continue

Gold’s exceptional performance in 2025 appears to be more than a cyclical surge. Structural forces such as de-dollarisation, rising global debt, persistent geopolitical risk, and evolving portfolio construction needs are boosting the role of gold in global markets.

While another year with unusually strong returns is unlikely, the balance of risks suggests the multi-year gold bull market remains intact. In an increasingly fragmented and uncertain global environment, where the spheres of influences of global superpowers are getting re-drawn, gold continues to stand out as a rare source of stability.

Source: Source: TradingView. Daily gold price chart as of 23 December 2025.

The Macro Backdrop for Gold in 2026

Looking into 2026, we expect stable global economic growth, easing inflation, and further, though limited, interest rate cuts. Under such conditions, gold prices may consolidate at elevated levels rather than extend sharply higher.

However, recent history suggests that consensus outcomes rarely unfold smoothly. Geopolitical tensions remain unresolved, trade frictions persist, and debates around inflation, debt sustainability, and monetary credibility are far from settled. These uncertainties continue to enhance gold’s appeal as a strategic hedge.

If 2026 is characterised by a moderate economic slowdown that avoids a recession, in such environment, risk appetite would likely fade gradually as labour markets cool, consumer demand softens, and equity market expectations reset. Central banks would likely respond with more aggressive rate cuts than currently priced. Falling real yields, a weaker US dollar, and rising risk aversion would provide a supportive backdrop for gold, potentially allowing prices to rise to $4,800 – $5,000 by the end of 2026.

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