Executive Summary
What's Driving Gold's Price?
Gold has been driven by other factors in recent months beyond traditional drivers like Fed expectations and rates. The macro backdrop has shifted, with gold's performance increasingly decoupling from conventional correlations.
Gold has been ignoring Fed expectations and rates moves. The negative correlation with the dollar has been intact, and US dollar weakness helps support gold prices. However, the primary drivers have expanded beyond traditional factors.
Gold Interest Has Picked Up Across the Board
Continued inflows into gold ETFs, especially in the US and China, demonstrate broad-based interest. Total gold ETF holdings have reached 120.4 million ounces. North American ETF holdings have risen to approximately 65 million ounces, while Chinese holdings have increased to around 8 million ounces.
Physical investment demand is also strong. Physical demand has remained strong, partly due to seasonality, but mostly because of strong onshore sentiment in China. We expect long-term demand in China to stay strong given the macro backdrop.
Official Sector Demand Should Remain Elevated
Purchases have generally been resilient to the sharp rise in gold prices. We expect a gradual slowdown, but see upside risks should tensions escalate. Central bank gold reserves as a percentage of total reserves have declined from around 90% in 1970 to approximately 11% today for advanced economies.
Gold purchases by central banks and other official institutions reached over 1,000 tonnes in both 2023 and 2024, and remain elevated in 2025 at approximately 900 tonnes.
| Metal | Period | Old | New | % Chg | Upside | Downside |
|---|---|---|---|---|---|---|
| Gold | 2026E | 4,675 | 5,200 | +11% | 5,750 | 3,900 |
| Gold | 2027E | 4,275 | 4,800 | +12% | 6,000 | 3,575 |
| Silver | 2026E | 78.8 | 105.0 | +33% | 130 | 60 |
| Platinum | 2026E | 1,925 | 2,375 | +23% | 2,800 | 1,650 |
| Palladium | 2026E | 1,670 | 1,900 | +14% | 2,500 | 1,250 |
Gold's Investor Base is Expanding
There's still room for investors' gold allocations to rise. Gold ETFs and speculative positions as % of total AUM remain well below historical peaks, currently around 0.30% compared to highs above 0.50% seen in the past.
Diversification is ever more compelling in the current macro backdrop. The average bond-equity correlation has shifted significantly, with gold emerging as an effective hedge in higher inflation environments.
"Gold has outperformed other traditional safe-havens in protecting portfolios during periods of 'risk-off'. This should eventually allow gold to resume its uptrend and see new highs in the coming quarters."
A Growing List of Long-Term Concerns Support Gold
- Elevated macro uncertainty and geopolitical risks: Global tensions continue to support safe-haven demand for gold.
- Policy easing amid slowing growth: Central banks globally are easing policy, which typically supports gold prices.
- Upside to inflation amid tariffs: Trade tensions and tariffs create inflationary pressures that benefit gold as an inflation hedge.
- Stagflation risks: The combination of slow growth and persistent inflation creates an ideal environment for gold.
- De-dollarisation, debasement, asset rotation: Structural shifts away from the US dollar support gold's role as an alternative reserve asset.
- Shifting global political and trade relationships: Changing alliances and trade dynamics drive demand for neutral assets like gold.
- Fed independence and credibility: Concerns about central bank independence support demand for hard assets.
- Fiscal and debt sustainability: Growing government debt levels globally support gold's appeal as a store of value.
Key Downside Risk: Strong Growth and Fed Pivot
Reacceleration in growth and anticipation of tighter Fed policy, higher real rates and a stronger dollar changes gold's narrative. We expect this to trigger a reversal in gold's direction, though unlikely to result in the same reaction as the Fed 'taper tantrum' in 2013.
A sharp sell-off in equities or bouts of USD strength could drag gold lower, though should be a buy-the-dip opportunity. The gold:silver ratio indicates near-term consolidation is warranted.
| Metal | Period | Old | Base Case | Upside | Downside | Forecast vs Old |
|---|---|---|---|---|---|---|
| Gold | end-2026 | 4,500 | 5,000 | 6,000 | 3,000 | +24% |
| Gold | end-2027 | 4,000 | 5,000 | 6,000 | 3,500 | +25% |
| Silver | end-2026 | 75 | 120 | 150 | 65 | +60% |
| Platinum | end-2026 | 1,850 | 2,700 | 3,000 | 1,900 | +46% |
| Palladium | end-2026 | 1,700 | 1,900 | 2,450 | 1,400 | +12% |
Investment Conclusion
We expect support to come in around the $4,500 area. This period should provide investors the opportunity to build long-term strategic positions at more attractive entry levels. This should eventually allow gold to resume its uptrend and see new highs in the coming quarters.
The underlying constructive narrative for gold is intact. We maintain our positive long-term view on gold and see the current pullback as an opportunity to accumulate positions.
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