Gold continues to shine in 2026

In the US, the emergence of fiscal dominance, where government spending pressures the Federal Reserve (Fed) to maintain low interest rates, has heightened inflation fears and raised questions about the Fed’s independence. These concerns have amplified gold’s appeal.

Central banks, particularly in developing countries, have played a significant role in the gold rally by diversifying their reserves away from the US dollar. The push for de-dollarisation has seen global gold reserves held by central banks reach approximately 35,000 tonnes, valued at over USD 4.5 trillion. This total surpasses foreign holdings of US Treasuries. Gold now accounts for about 25% of global central bank reserves, up from 10% a decade ago. We expect this trend to continue into 2026, as rising geopolitical fragmentation and persistent inflation concerns will continue to drive central banks’ demand for gold.

Retail investors, too, have contributed to the rally, purchasing gold bars, coins and gold-backed exchange-traded funds (ETFs) at unprecedented levels. This surge, often described as ‘gold-plated FOMO’ (fear of missing out), reflects widespread concerns about inflation, geopolitical fragmentation and financial crises. Investors are increasingly embracing what is known as the ‘debasement trade.’ The term refers to a growing investor trend of moving away from traditional fiat currencies and government bonds, driven by fears of rising government deficits and currency devaluation. Instead, investors turn to assets viewed as a hedge against inflation, such as gold.

In Japan, the sharp depreciation of the yen against the US dollar has significantly weakened the purchasing power of Japanese residents, pushing them to seek refuge in gold. This shift is notable for a country previously characterised by deflationary stagnation.

Despite the enthusiasm, experts warn of risks, including the possibility of a bubble. Historically, gold rallies have often preceded sharp corrections, and analysts note that gold is currently trading more than 20% above its 200-day moving average, signalling speculative behaviour. Gold also experienced a temporary pullback last month, and questions are raised about the sustainability of current price levels. However, we do not share that concern or think that gold is in bubble territory. While short-term volatility is possible, we believe the drivers, such as de-dollarisation, central bank buying and inflation fears, remain intact. Furthermore, having gold in a portfolio offers diversification benefits, as it tends to perform relatively well during periods of market stress, and tends to show low or negative correlation with equities and bonds.

Looking ahead to 2026, gold demand will continue to be driven by de-dollarisation, inflation concerns, geopolitical instability and growing doubts about the Fed’s independence. Therefore, we are increasing our overweight positioning in gold due to gold’s diversification benefits. Our target price stands at around USD 4,200 by the end of this year. We anticipate this rally to continue into early 2026, and later in 2026, we expect prices to stabilise.