Source: Jinshi Data
The views expressed in this article are from Charalampos Pissouros, Senior Investment Analyst at XM.
The drivers of gold remain solid, with momentum expected to continue into early 2026, and the bullish target set above $5,000! However, an excessively bullish stance is not without risks...
In 2025, gold became one of the best-performing assets globally, with a cumulative increase of over 70% within the year. In contrast, the S&P 500 Index rose by only approximately 17%.
The precious metals market in 2025 could be described as having every advantage, but this raises a crucial question: does its robust upward trend still have sufficient momentum to continue? Since the beginning of the year, gold has repeatedly reached new historical highs, primarily driven by inflows of safe-haven funds and growing market expectations that the Federal Reserve may aggressively restart interest rate cuts.
Fed Rate Cut Expectations Reduce Gold's Opportunity Cost
Looking at the Fed, after remaining on hold for most of the year, the Federal Reserve Board restarted the easing cycle in September with a 25-basis-point rate cut, followed by another equal-sized cut in October.
Although the probability of a third consecutive rate cut in December was initially low following the October meeting, delayed data releases due to the U.S. government shutdown revealed signs of economic weakness. Coupled with dovish signals from key policymakers, including the influential New York Fed President Williams, the likelihood of a December rate cut increased. Looking ahead to 2026, markets still anticipate an additional 60 basis points of easing, equivalent to two 25-basis-point cuts and potentially a third.
Although these expectations already appear excessively dovish, the implied interest rate path still carries the risk of further downward adjustments. Fed Chair Powell is set to step down on May 15 next year, and his successor, personally chosen by President Trump, will take office. Against this backdrop, the Fed may adopt a significantly more dovish stance next year.
Geopolitical Conflicts and Tariff Policies Drive Safe-Haven Demand
Geopolitical tensions were also a major force driving gold prices higher this year, reinforcing its status as a safe-haven asset. The Russia-Ukraine conflict persists, while friction in the Middle East continues. Meanwhile, tensions between India and Pakistan intensified in 2025, and the prolonged civil war in Sudan remains ongoing.
Military conflicts were not the sole catalysts driving safe-haven inflows into gold. On Trump's so-called 'Liberation Day,' he announced comprehensive tariffs on nearly all countries worldwide, triggering a cycle of tariff threats and retaliations among nations, further boosting demand for the precious metal.
Even as some conflicts eased or were temporarily resolved, shifting market attention elsewhere, gold continued to attract inflows. This may be because investors sought to hedge their increasing exposure to high-risk assets (such as equities) — especially as stock valuations briefly surpassed their 2020 highs amid persistently elevated uncertainty.
In summary, the recurring geopolitical risks, combined with the ultra-dovish expectations for the Federal Reserve, are expected to provide continuous support for gold in 2026.
Central banks have increased their gold reserves, and the process of de-dollarization continues to advance.
The theme of de-dollarization may be another positive variable in the movement of gold prices. Central banks around the world continue to diversify their reserves by stockpiling gold. Since Trump's election as U.S. President, China has been a steady buyer of gold.
The central bank of India has also increased its gold reserves due to pressure from rising import prices, while several other emerging market central banks—including the National Bank of Kazakhstan, the Central Bank of Turkey, and the Central Bank of Uzbekistan—have joined this trend. According to data from the World Gold Council, global central banks’ net gold purchases reached 634 tons in the first three quarters of this year. Although this is lower than the peak levels of the past three years, it remains significantly higher than the average before 2022, providing strong underlying support for gold prices.
Therefore, amid persistently high uncertainty surrounding U.S. trade policy, it is unlikely that central banks will stop increasing their gold holdings. This trend is expected to continue supporting gold through 2026.
The gold-to-silver ratio is approaching the 60 threshold, potentially triggering a catch-up rally in gold.
Although gold has performed well, it still lags behind silver and platinum, with silver surging more than 150% in 2025. One reason some investors shifted to silver may be gold’s earlier significant rise, which pushed the gold-to-silver ratio to pandemic-era levels. However, as silver soared this year, the gold-to-silver ratio has dropped sharply and is now approaching the 60 threshold for the first time since 2013. This dynamic could signal a rebound in the gold-to-silver ratio, potentially accelerating gold’s upward momentum again at least in the first few months of 2026.
Notably, in December 2025, the precious metals market experienced divergence, with London silver plummeting over 3%, New York silver futures dropping by 3.88%, while London gold surged strongly toward historical highs. This raised questions about the sustainability of silver’s rally. Carsten Menke, Head of Research at Julius Baer, noted that silver prices had risen too rapidly and reacted excessively, prompting him to tactically downgrade its outlook to neutral.
Downside risks cannot be overlooked.
However, this does not mean that the overly bullish outlook for precious metals is without risk. One factor that could slow gold’s rally is China’s new gold taxation policy. This might suppress local demand and exert downward pressure on prices. However, in the long term, this measure could enhance market transparency and ultimately support investment demand.
Moreover, as gold prices continued to set new historical records in 2025, jewelry demand in India plummeted significantly. Although the public seemed to shift towards investment-oriented gold products such as ETFs, overall gold demand in India still declined by 16% in Q3 2025. A similar trend was observed in global markets. According to data from the World Gold Council, despite robust investment demand and ongoing central bank purchases, global jewelry consumption fell year-on-year, resulting in only a 3% year-on-year increase in total gold demand for Q3.
2026 Outlook: Momentum May Slow After Breaking $5,000
Overall, the factors driving gold to repeatedly set new historical highs in 2025 remain solid, suggesting that the precious metal's upward momentum may extend into the first few months or even the first half of 2026. The bullish target could focus on the psychological threshold of $5,000 or the $5,200 level—close to the 261.8% Fibonacci extension of the retracement from October 20 to October 28.
Goldman Sachs' latest forecast also indicates that gold prices could reach $4,900 per ounce by the end of 2026, with a note that “upside risks are significant if private sector purchases exceed expectations.”
Nevertheless, further increases in gold prices would pose challenges not only to retailers and investors but might also prompt some central banks to adopt a more cautious approach when increasing reserves; some may choose to temporarily adopt a wait-and-see stance. Additionally, if the U.S. economy performs strongly, the Federal Reserve’s rate cuts in 2026 may fall short of current market expectations. Thus, if the Fed disappoints gold bulls, precious metals may see slower upward momentum or enter a consolidation phase in the second half of the year.
For investors, institutions generally believe that “gold > silver” will hold true in 2026, with gold serving as a core safe-haven asset for long-term allocation. It is recommended to allocate 5%-10% of portfolios to gold, with attention to flexible opportunities in gold ETFs and gold stocks. Silver, on the other hand, exhibits high volatility and is highly susceptible to sentiment-driven fluctuations, making it more suitable for swing trading. If silver retreats to the $55–$58 range (corresponding to a gold-to-silver ratio above 75), it could be considered for phased accumulation.
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Editor/jayden