Onome Amuge
Gold’s remarkable rise in 2025 has cemented the precious metal as one of the standout global assets of a year otherwise defined by political rupture, market turbulence and recurring macroeconomic surprises. After posting more than 50 record highs and climbing over 60 per cent year-to-date by late November, bullion is preparing to enter 2026 with expectations both elevated and uncertain, according to the World Gold Council.
This year’s rally, set to become gold’s fourth-strongest annual return since 1971, has been fuelled by an unusually potent mix of geopolitical anxiety, macroeconomic fragility and broad-based investor demand. A weaker US dollar, easing in interest rates and rapidly shifting market positioning have collectively strengthened the metal’s appeal as a rare source of clarity in an increasingly opaque environment.
Investors, asset managers and central banks have all expanded their allocations, treating gold as a strategic bulwark as war, trade conflict and sudden policy pivots reshape the global outlook. Yet even as bullion prices hover near historic peaks, analysts warn that next year could prove even more unpredictable.
With the global economy absorbing the effects of Donald Trump’s second term in the White House, lingering tensions across Asia and the Middle East, and fresh concerns about the sustainability of AI-driven equity valuations, the consensus view for 2026, that gold will trade in a relatively narrow band, masks a vast spectrum of potential outcomes.
Depending on the interaction of growth, inflation and policy, the metal could extend this year’s gains, stage an even steeper ascent, or suffer a significant setback.
A rally built on risk, politics and momentum
The scale and breadth of gold’s 2025 rise has startled even long-time market participants. The World Gold Council’s attribution analysis indicates that no single factor explains the rise; instead, the year has been characterised by near-perfect symmetry among the four main drivers of gold returns: economic expansion, risk and uncertainty, opportunity cost, and momentum.
Heightened geopolitical risk, dominated by tensions in the Taiwan Strait, the Middle East and Eastern Europe, accounted for roughly 8 percentage points of this year’s gains. Broader political instability added a further 4 percentage points, underlining the extent to which investors have been hedging against political tail events.
Meanwhile, the US dollar’s weakness and marginally lower yields contributed around 10 percentage points, while another 9 percentage points came from strong price momentum and investor positioning. Economic growth, though slowing, still supported gold’s financial and physical markets, adding another 10 percentage points.
Central bank buying continued its multi-year trend, with 2025 demand running well above historical norms, even if slightly below the record levels set between 2022 and 2024. Emerging market banks, still holding a significantly smaller share of their reserves in gold compared with advanced economies, accounted for the bulk of the purchases.
Markets brace for a volatile 2026
Despite the powerful rally, the prevailing view among economists is that gold will enter 2026 broadly rangebound, reflecting consensus expectations of steady global growth, declining inflation and further,though limited,interest rate cuts. But few analysts have confidence that consensus will hold.
The geopolitical landscape has become more combustible, not less. Supply chain realignment continues to reshape trade flows. US-China relations remain tense. And while markets have priced out extreme inflation shocks, they have not fully confronted the possibility of a severe global slowdown or a pronounced rate-driven tightening of financial conditions.
The result is a macroeconomic outlook in which tail risks, both positive and negative, are becoming more frequent. The rise of such risks is reflected in the S&P 500’s skew and kurtosis indices, which point to a market increasingly sensitive to outsized moves and highly reliant on hedging activity.
One of the more plausible narratives is a soft but broad-based economic slowdown, triggered by a cooling labour market, declining consumer momentum and fading optimism about the earnings potential of AI-focused mega-cap equities.
According to analysts, if investors begin reducing exposure to risk assets, this de-risking could extend across sectors, intensifying volatility. A pullback in AI optimism, given the category’s dominant role in major equity indices, could exacerbate the downturn.
Under this scenario, the Federal Reserve would likely implement more aggressive rate cuts than the currently expected 75 basis points. A weaker dollar, lower yields and persistent geopolitical unease would provide sustained support for gold.
Analysts estimate bullion could rise 5 to 15 per cent under these conditions, a solid return in any year, but particularly notable following 2025’s extraordinary gains.
Additional support may come from continued central bank buying and the emergence of new institutional investors, particularly in Asia, where insurers and pension funds in China and India are increasingly exploring strategic gold allocations.
A more extreme downturn, characterised by collapsing business confidence, declining consumer spending and accelerating geopolitical conflict, could ignite one of the most powerful gold rallies in recent history.
In what is described as a “doom loop,” global activity slows sharply, inflation falls below target, and policymakers move aggressively to stimulate demand. Long-term yields drop steeply, while the dollar weakens as rate differentials narrow and risk aversion spreads across asset classes.
Analysts estimate bullion could gain 15 to 30 per cent in 2026 in a full-scale flight-to-safety rally. ETF inflows, which already exceeded 700 tonnes in 2025, could accelerate dramatically. Historically, rising prices amplify momentum flows, creating a feedback loop of investor demand.
Despite the scale of 2025’s inflows, total ETF holdings remain less than half the size reached in previous gold bull cycles, indicating considerable room for expansion.
The most bearish possibility,though not the base case, is that the Trump administration’s policies succeed in stimulating a far stronger-than-expected US expansion.
Infrastructure spending, tax incentives and deregulation are projected to collectively push the US economy onto a higher-growth trajectory. If inflation rises in tandem, the Fed may be forced to hold rates higher for longer or even resume tightening.
Such an environment would boost the dollar, push up long-term yields and encourage a broad risk-on rotation into equities, corporate bonds and cyclical sectors. Gold, with no yield and weaker safe-haven appeal, would face simultaneous pressure on multiple fronts.
Under this scenario, prices could fall 5 to 20 per cent, driven by ETF outflows, softer retail demand and negative price momentum. The adjustment would partly unwind the multi-year political and geopolitical premium embedded in the gold market since Russia’s 2022 invasion of Ukraine.
Still, some analysts argue that opportunistic buying among long-term investors and consumers could soften the blow, preventing a deeper correction.
“Gold doesn’t crash in reflation scenarios, but it struggles. The opportunity cost becomes too high,” an ETF strategist said.
Beyond macroeconomics, central bank buying and global recycling flows, are considered to have the potential to shift prices significantly.
Central bank demand
Emerging market banks have not yet normalised their gold holdings relative to advanced economies. If geopolitical tensions intensify, particularly in Eastern Europe, the Middle East or the South China Sea, these institutions could accelerate purchases, reinforcing gold’s structural bid.
Conversely, a sharp drop-off in official sector buying to pre-pandemic levels could remove one of the market’s most important sources of support.
Recycling flows
Recycling has remained surprisingly muted despite high prices. The World Gold Council attributes this partly to a boom in the use of gold jewellery as collateral for loans,especially in India, where more than 200 tonnes have been pledged through the formal banking system in 2025.
According to the Council, if India’s economy slows meaningfully, forced liquidations of this collateral could release a wave of secondary supply, adding downward pressure to prices. Conversely, continued stability would keep recycling flows subdued, supporting the market.
