Why gold in 2026? A cross-asset perspective

Looking ahead, risk assets are sitting at uneasy highs against a backdrop of a world in turmoil (Chart 3 & Chart 4). Yes, there are a host of tailwinds that should support a revival in growth throughout the year, including easier monetary policy and the global fiscal boost. But the consensus narrative of a global economy that has proved “robust” in the face of tariffs and turmoil underestimates the very real risks that remain.

The concerning mismatch between the level of conviction in the outlook vs. the economic policy uncertainty currently on display (Chart 5) is one of the key reasons gold had its best year since the 1970s and continues to do well year-to-date. And while there is perhaps a concern that gold looks overbought and might struggle to find marginal investment buyers, it remains strategically under-owned (Chart 6).

For now, the central problem for investors is working out how to position their portfolios amid the clear disconnect between the level of conviction in the outlook and the policy uncertainty. Yes, investors can and should recognise the monetary and fundamental forces that have driven markets higher – especially with more easing on the way in 2026. But stretched valuations and persistent macro risks demand caution, emphasising the need for diversified portfolios. As geopolitics and shifting US policies continue to impact asset allocation, we believe there should be a focus on quality assets, such as gold.

Bonds, a no go?

Much of the optimistic growth outlook for this year rests on the expectation that the US fiscal impulse will turn positive. In such a scenario, inflation is the biggest potential spoiler, particularly as US core PCE inflation is already proving sticky at around 3%. The fact that there is very little slack in the US economy clearly adds to this risk. Indeed, the US economy has been running above its potential growth rate for much of the past four years and the output gap is now near past highs; historically, such scenarios put sustained upward pressure on consumer price inflation (Chart 7).

If core inflation rises meaningfully the Fed will have to raise short-term rates again. In other words, the bond market is not out of the woods, and another cyclical upleg in developed market yields could be in the offing. And while a clear turn towards policy hawkishness could curb gold demand in the near term due to a higher opportunity cost, gold should be supported in the medium term via stronger inflation-hedging demand and a higher stock-bond correlation (Chart 8).

Moreover, gold can still perform its strategic role despite the big rally we have witnessed over the last several years. Historically, meaningful gold returns prior to a market event have not prevented it from behaving like a safe-haven asset during a market stress event (Chart 9).

Equities: a bumpy road ahead…

The likelihood of reaching breaking points in equity markets during 2026 is difficult to ascertain with any level of confidence, but for a hint as to the bumpy road ahead look no further than the surging US margin debt – a sign that excesses could be building. Margin debt reflects the amount of funds that investors borrow from their brokers to purchase equities. It typically tracks the performance of the S&P 500, which makes intuitive sense since rising stock prices produce confidence about future equity returns and encourage investors to take on more risk (Chart 10).

And while growth in margin debt does not necessarily signal an impending peak in the stock market, it is an indication of increasing financial speculation and growing risks to market stability. In fact there have only been three occasions when the y/y growth of margin debt has exceeded the 12-month return of the S&P 500 by a similar or larger magnitude, as it did in December (Chart 11). This recent surge in margin debt reinforces the notion that there is scope for greater equity market volatility in the year ahead.

And after a long rally, and with valuations approaching dotcom levels, it would only take a couple of missed earnings targets to puncture confidence. This, in turn, could result in an unwinding of investor leverage positions (potentially magnifying the downside risks to stock prices) and lead to greater safe-haven demand, notably gold. In fact, with few exceptions, gold has been especially effective during such periods of systemic risk, generating positive returns and reducing overall portfolio losses (Chart 12).

Conclusion

As investors navigate a landscape marked by stretched valuations, persistent macro risks, and rising pockets of financial excess, the need for resilience in portfolios has rarely been more pressing. In this environment, gold’s strategic role remains as relevant as ever. Its historical ability to provide diversification, mitigate drawdowns during periods of market stress, and perform even after strong run-ups, reinforces its value as a core, long-term portfolio component.