Gold in review: from pure macro trade to cornerstone asset

The long road to the current rally

Some observers trace the origins of the current gold bull market back to 2020, when the outbreak of Covid triggered aggressive monetary easing, fiscal stimulus, and a collapse in real yields. That episode undoubtedly provided a powerful initial boost, as gold performed its traditional role as a hedge against monetary debasement and financial instability.

However, the more decisive turning point came later. The low-rate, high-stimulus environment of 2021 led to a sharp rise in inflation, forcing central banks to pivot abruptly towards aggressive tightening in 2022. On paper, this should have been a deeply negative development for gold. Rising policy rates and a surge in real yields—US ten-year real yields rose from around –1.2% to +2.5% between 2022 and 2023—have historically been among the strongest headwinds for the metal.

Yet gold refused to break lower. The reason lies in what else happened in 2022. Russia’s invasion of Ukraine and the subsequent freezing of Russian foreign exchange reserves by Western governments marked a watershed moment in the global financial system. For the first time, a major sovereign’s reserves were effectively weaponised. This event fundamentally altered how many central banks—particularly outside the Western sphere—perceive the risks associated with holding dollar-based assets.

Central banks take centre stage

From 2022 onwards, central banks emerged as the dominant marginal buyer of gold, while Western investors were reducing exposure—most clearly seen in a prolonged slump in ETF holdings of around 800 tonnes between April 2022 and the trough in May 2024. During this period, official-sector demand surged, with purchases exceeding 1,000 tonnes in each year from 2022 to 2024, and with the pace only slowing a bit this year. Central banks were buying gold not for tactical or speculative reasons, but for strategic ones: to reduce exposure to the US dollar, diversify reserves, and in some cases move towards gold as a partial replacement for dollar assets.

This divergence between private and official demand proved critical. It absorbed selling pressure during a period when rising yields would normally have driven prices sharply lower. Instead, gold consolidated, building a base that ultimately paved the way for the decisive breakout in early 2024. Once prices began to rise, momentum-focused traders, speculators, and eventually longer-term investors re-entered the market, reinforcing the trend.

China’s growing influence

China has played an increasingly important role in underpinning gold prices in recent years. This has been evident not only through official buying by the People’s Bank of China, but also through rising private demand. A prolonged downturn in China’s property market—now extending into its fourth year—has forced investors to seek alternatives. For many, gold, silver, and platinum have emerged as preferred stores of value.

This shift matters because Asian demand tends to be less sensitive to interest rates than Western investment flows. As a result, traditional drivers such as real yields and the dollar have become less dominant in explaining short-term price movements. The resilience of gold during the 2022–2023 real-yield surge is a clear illustration of this changing demand structure.

Events with lasting impact

Geopolitical shocks typically have a short-lived impact on gold prices, often fading once immediate risks subside. However, the current wave of central-bank buying is different precisely because it is rooted in geopolitics. The freezing of sovereign reserves and the broader fragmentation of the global financial system have introduced a structural element to gold demand that is likely to persist for years.

This has coincided with a broader shift in how gold is viewed. For decades, particularly in the West, gold was treated primarily as a cyclical hedge against inflation or falling real yields. Increasingly, it is being viewed as a strategic asset—one that provides insurance against financial sanctions, fiscal dominance, and the erosion of trust in fiat systems.

Risks on the road into 2026

Despite the strong momentum, gold is not without risks heading into 2026. In the very near term, the most tangible risk comes from positioning and flows. The strong gains in gold and silver during 2025 mean that the upcoming rebalancing of major commodity indices—not least the precious-metal-heavy Bloomberg Commodity Index—will trigger significant selling in futures markets. This process, running for five days from 8 January, could generate notable short-term volatility. How well the market absorbs this selling will likely help determine price direction during the first quarter.

Beyond technical factors, there is also the question of demand sustainability. As gold prices rise, the value of existing central-bank reserves increases, which could eventually lead to a moderation in official buying. A renewed rise in real yields—should growth stabilise—or a broad risk-on environment that reduces hedging demand could also weigh on prices. A stronger dollar or meaningful geopolitical de-escalation, particularly between the US and China, would further reduce some of the embedded risk premium.

What could drive the next leg higher?

Looking beyond short-term risks, several scenarios could still push gold to new highs and towards our end-2026 target of USD 5,000. Sticky inflation combined with rate cuts into slowing growth would raise concerns about stagflation-like conditions—a historically supportive environment for gold. At the same time, fiscal dominance is becoming an increasingly important theme, particularly in the US, where interest payments are now among the largest items in the federal budget. Rising debt levels and questions about long-term sustainability tend to reinforce demand for hard assets.

Political interference in central-bank independence represents another key upside risk. Concerns that the Federal Reserve could face pressure to prioritise growth or fiscal considerations over price stability would likely undermine confidence in fiat currencies. Historical examples, such as Turkey—where premature rate cuts amid rising inflation led to currency weakness and unanchored expectations—illustrate why markets respond so strongly to such developments.

Geopolitics: priced, but not exhausted

While some level of geopolitical risk is clearly priced into gold, it would be a mistake to assume the story is complete. The gradual erosion of the post-Cold-War world order, marked by strategic rivalry between the US and China, represents a persistent source of uncertainty rather than a one-off shock. This environment is inherently supportive for gold and other hard assets. Any meaningful escalation—whether through trade, technology, or financial channels—could still accelerate prices further.

Conclusion

Gold’s performance over the past two years reflects more than just a favourable macro cycle. It signals a deeper transition in the global financial system, where trust, diversification, and resilience have become as important as yield and growth. As we head into 2026, gold is no longer just a hedge against inflation or falling rates—it is increasingly a cornerstone asset in a world defined by fragmentation, fiscal strain, and geopolitical uncertainty.