Gold underwent a historic rally in 2025, its best year since 1979 in terms of returns, with prices rising approximately 65% to reach nearly $4,340 per ounce. A rolling 7-year CAGR of 7.5%, coupled with a declining standard deviation of 9.7%, highlights the asset's ability to mitigate market fluctuations, especially during economic crises.

The 2025 rise was primarily driven by tariff uncertainty and strong demand from ETFs and central banks. Despite a late-year retreat from its Christmas peak (triggered by CME Group margin hikes and year-end profit-taking), gold entered 2026 with a 'bullish' setup, as central banks across Asia and the Middle East continued to buy into the December 31st dip, largely to protect themselves from a potential global debt crisis.

To examine its outlook for the year, we look at a 7-factor framework that evaluates key macroeconomic, market, and risk-related drivers influencing gold’s long-term performance. We group key drivers into three categories: Liquidity & Macros, Market Forces, and Risk & Inflation. Gold’s trajectory will be driven by global easing, rising debt, and the ongoing trend of de-dollarization.

Liquidity and Macros:

• Interest Rates: The median projection from Fed officials signals only one more 25bps cut in 2026, aiming for a range of 3.25%-3.50%. While this modest easing for the year may not exert significant immediate upward pressure, the expected appointment of a new Fed Chair in May 2026 could trigger a 'volatility and expectation spike' if the nominee is perceived as more dovish. From a long-term perspective, interest rates tend to regress toward the mean (long term neutral rate ranges from 2.5% to 3%), this transition provides a structural tailwind for gold within an extended investment horizon.
  

• Money Supply: In late 2025, the Fed ceased QT and approved new purchases of Treasury bills and coupon bonds at a rate of up to $40 billion per month. While the Fed characterizes these operations as 'Reserve Management,' they effectively initiate a QE-like environment expected to exert a multiplier effect on the M2 supply and decrease the relative value of the dollar. Upward pressure of gold can be placed as more dollars chase a finite amount of gold, given that gold mine supply growth tends to be slow and relatively inelastic. Also, the Fed slashed the monthly reinvestment caps for Mortgage-Backed Securities (MBS) from $35 billion to $2 billion. This shift essentially allows the Fed to reinvest more.
  

• Debt to GDP ratio: According to the latest IMF and World Bank data for early 2026, global public debt is now surpassing $100 trillion. While dangerous, the gold’s 'scarcity premium' tends to broaden in response to high global debt levels. Under modern banking frameworks like Basel III, physical gold is increasingly recognized as a Tier 1 reserve asset.
  

Market Forces:

• Demand and Supply: Global gold demand hit 1,313 tonnes in the third quarter of 2025, the strongest quarterly total on record, according to the World Gold Council. ETF, bar and coin demand remained robust, while jewellery demand fell YoY. Central banks (active buyers: Poland, China, India, Turkey) plan to purchase between 700 and 800 tonnes of gold in 2026

(Source: World Gold Council, ING Research)

While this is a slight step down from 1,000+ tonnes seen during the peak of the Russia-Ukraine crisis (which was doubled due to the outbreak), it is still four times higher than pre-2022 averages. J.P. Morgan suggests markets need roughly 350 tonnes of net demand from investors and central banks per quarter just for gold prices to stay flat. Every 100 tonnes of demand above that 350-tonne baseline typically results in a 2% quarterly rise in gold's price. For 2026, this demand is projected at 585 tonnes per quarter, far exceeding the maintenance level.

Also, Goldman Sachs notes potential upside from the US private portfolio diversification, where gold is at 0.17% of the portfolio lower than 2012 exposure by 6 bps. Each 1 bp increase in gold’s share of US financial portfolios could lift prices by roughly USD 140, suggesting further scope for investor-driven gains.

Data source: Bloomberg

• Dollar Index: The U.S. dollar is entering a cyclical weakening phase, though its structural dominance remains intact. While a single rate cut in 2026 wouldn’t trigger much movement, two rate cuts could lead to gradual depreciation, providing a tailwind for gold. Our base case anticipates orderly dollar weakness as policy eases and the cycle matures. This creates an asymmetrical risk profile: gradual depreciation under expected conditions (rate cuts and expansionary money supply) versus sharp appreciation during periods of unforeseen volatility (tariffs, geopolitical movements)
  

Risk and Inflation:

• Expected CPI: Inflation is projected to hover between 2.7% and 2.8% throughout much of 2026. We appear to be in a transitional phase, shifting from cost-push to demand-pull inflation; however, the aftershocks of 2025’s tariffs remain a persistent reality. When combined with the Fed’s rate-cutting cycle, this may result in a significant 'Yield Gap,' where inflation erodes bank savings faster than interest can accumulate.
  

• Geopolitical Events: Geopolitical shocks are no longer considered 'black swan' events. While the predictability of specific outcomes has diminished, tensions in Ukraine, the Middle East, and US-China relations remain persistent. Gold continues to function as a safe haven during risk-off periods, yet it also captures significant investment demand in risk-on markets.
  

(Source: Morningstar)

Summary

Gold enters 2026 influenced by many of the macroeconomic themes that supported its performance in the prior year, although the pace and pattern of returns may vary. Greater clarity around trade policy and geopolitical developments has reduced some uncertainty relative to 2025, even as structural risks persist. Central bank demand for gold remains elevated by historical standards, despite expectations of moderation from the unusually high levels recorded last year. In an environment characterised by lower interest rates, persistent inflationary pressures, and ongoing geopolitical considerations, gold continues to be monitored as part of broader portfolio diversification and risk management discussions. Its role during periods of market volatility will remain dependent on evolving global and financial conditions.