Gold is on track to finish its best year in over four decades, leaving the S&P 500 and global bonds in the dust.
- IAU ETF nears record highs. Take a look at its chart here.
But after a stunning 60% rally in 2025, the biggest question on Wall Street is simple: Is the gold trade too crowded, or is the party just getting started?
The latest World Gold Council outlook suggests the answer depends less on what gold has just done and more on how the macroeconomic regime shifts over the next twelve months.
Why Gold Rallied In 2025
The precious metal – as tracked by the SPDR Gold Shares (NYSE:GLD) – delivered a 60.6% gain through early December, setting more than 50 all-time highs.
But what made 2025 so remarkable was not simply the magnitude of the rally but its composition.
According to the Council, the year's gains were driven by four major factors:
- Geopolitical risk: Contributed 12 percentage points to returns,
- Weaker dollar and lower rates: Added another 10 points,
- Momentum and investor flows: Boosted returns by 9 points,
- Economic expansion: Accounted for 10 points.
- Other factors not included in the model, such as central bank purchases, accounting for about 20 percentage points.
In other words, gold didn't rise because of a single dominant narrative. It rose because every macro lever that normally pushes and pulls the metal happened to tilt in the same direction at the same time.
Global gold exchange-traded funds (ETFs) also played a significant role. Net inflows added 700 tonnes in 2025, and cumulative ETF holdings since May 2024 are up by 850 tonnes.
Chart: On Track For Its Best Annual Performance Since 1979
What Scenarios Could Shape Gold In 2026?
While the base case for 2026 is a range-bound market, the Council outlined three macroeconomic scenarios that could shape gold's performance in 2026, ranging from continued strength to a steep correction.
1. Shallow Slip (Gold +5% to +15%)
If U.S. growth softens and the Federal Reserve delivers more than 75 basis points of rate cuts, while the dollar weakens, gold could see another year of solid — though more moderate — gains.
This scenario hinges on cooling inflation, a slower labor market, and continued central bank demand, particularly from emerging markets like India and China.
In this environment, gold could rise between 5% and 15%, building on its recent rally.
2. Doom Loop (Gold +15% to +30%)
A synchronized global downturn triggered by rising geopolitical conflict, financial market de-risking, and collapsing confidence could drive the metal significantly higher.
As economies slow and inflation falls below target, the Fed aggressively slashes rates. The dollar softens, yields drop, and investors flee risk. Inflows into gold ETFs spike, adding further fuel to the rally.
Gold could climb as much as 30% in this high-stress world. Despite already seeing inflows of over 700 tonnes in 2025, gold ETFs still have room to grow.
Compared to past bull cycles, holdings remain well below peak levels.
3. Reflation Return (Gold -5% to -20%)
That’s the most bearish scenario for gold. If President Donald Trump's fiscal policy successfully boosts growth and inflation heats up again, the Fed may hold or even hike rates.
The dollar would rally, long-term yields would rise, and gold's opportunity cost would surge.
In such an environment, investors could rotate out of gold and into equities or higher-yielding assets.
A broad risk-on shift would pressure prices, potentially leading to losses of 5% to 20%. ETF outflows could compound the decline, especially as hedges built up since 2022 unwind.
Are Wildcards in Play?
Two non-macro factors could surprise investors next year.
First, emerging-market central banks remain well below those of developed nations in reserve allocations, and any pickup in their demand would structurally support prices.
Second, recycling flows are unusually muted, especially in India, where over 200 tonnes of gold jewelry were pledged as collateral in 2025. A sharp downturn could force liquidations, increasing secondary supply.
Final Word: A Hedge Against The Unknowable
Despite its explosive run, gold's strategic value hasn't faded.
The Council stressed the rising frequency of tail-risk events — like 2025's Liberation Day shock — means gold will remain a relevant diversifier in any portfolio.
While the Council’s baseline outlook for 2026 points towards a relative steady performance, the potential for large upside or downside moves remains elevated.
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