Gold's luster has faded this year; should we make a major allocation before 2027?
2026-10-15 19:06:18
Precious metals were the best-performing asset class in 2025, but their performance weakened in 2026. Specifically, gold fell by about 3.5% this year. The yellow precious metal had a strong start to the year, continuing the previous year's upward trend and reaching a record high in January. However, gold prices failed to hold these highs and have fallen by more than a quarter from their peak. 
Why will gold fall in 2026? The yield on 10-year US Treasury bonds has broken through 5%, putting pressure not only on the stock market but also impacting gold. Gold itself does not generate interest and tends to underperform in high-interest-rate environments, with current US Treasury yields reaching multi-decade highs. Higher yields not only increase the opportunity cost of holding gold but also reduce its attractiveness compared to bond investments. US inflation remains high, consistently exceeding the Fed's 2% target, prompting the Fed to begin a tightening cycle, with the market expecting further interest rate hikes next year. The core driver of gold prices in recent years—central bank gold purchases—has seen a slight decrease in scale compared to last year, but the pace of purchases remains above historical averages. A stronger US dollar against major currencies also suppresses gold demand: a stronger dollar raises the price of gold in other countries' currencies, thus inhibiting demand. Furthermore, India, the world's second-largest gold consumer (with strong demand for gold jewelry), has tightened gold imports and urged its citizens to reduce or even suspend gold and jewelry purchases. The long-term structural support logic for gold: While the macroeconomic environment in 2026 is unfavorable for gold, long-term structural positive factors still exist. Although market prices may experience periodic fluctuations, under the trend of "de-dollarization," central bank gold purchases are likely to remain at a high level as countries diversify their foreign exchange reserves and reduce their dependence on the US dollar. The US debt continues to balloon, its fiscal deficit is unsustainable, and last year the sovereign credit rating of the world's largest economy was downgraded; currently, there is no clear path to a return to fiscal stability. While the author does not subscribe to the doomsday theory of an impending US economic collapse, gold has become a high-quality hedging asset against the backdrop of large-scale US fiscal expansion. Individual and institutional investors should continue to allocate gold through various financial products as a tool for hedging risks. Escalating geopolitical conflicts are also a major long-term theme. In 2022, Indian Prime Minister Modi told Russian President Putin that "this is not an era of war," but reality has turned out the opposite, and we seem to have entered a new phase of long-term conflict. Will gold see a rise in 2027? My personal judgment is that gold prices are likely to strengthen in 2027. First, after several years of impressive gains, US stocks are expected to consolidate next year. The S&P 500 is expected to achieve double-digit returns for the fourth consecutive year, which is extremely rare in market history. The last time this index achieved four consecutive years of double-digit returns was during the dot-com bubble of the 1990s, which was followed by the stock market crash of 2000. While it's too early to predict a repeat of the 2000 market crash, the valuations of some AI stocks are high, especially those of unlisted private AI companies, which are a cause for concern. Several leading private AI companies plan to go public next year, which will not only draw significant funds from the market but also lead to further speculation in the AI sector in the public market, raising overall risk levels. In such a scenario, gold's safe-haven properties would benefit it. This year's surge in US Treasury yields led to a sell-off in US gold ETFs; next year, investment demand for gold is expected to recover. Overall, with gold prices weakening recently, now is the time to invest heavily in gold; investors with a higher risk tolerance can also consider gold mining stocks. In the short term, the debate surrounding US Treasury yields continues, and gold prices may continue to fluctuate widely, but this yellow precious metal is expected to deliver excess returns next year.
Why will gold fall in 2026? The yield on 10-year US Treasury bonds has broken through 5%, putting pressure not only on the stock market but also impacting gold. Gold itself does not generate interest and tends to underperform in high-interest-rate environments, with current US Treasury yields reaching multi-decade highs. Higher yields not only increase the opportunity cost of holding gold but also reduce its attractiveness compared to bond investments. US inflation remains high, consistently exceeding the Fed's 2% target, prompting the Fed to begin a tightening cycle, with the market expecting further interest rate hikes next year. The core driver of gold prices in recent years—central bank gold purchases—has seen a slight decrease in scale compared to last year, but the pace of purchases remains above historical averages. A stronger US dollar against major currencies also suppresses gold demand: a stronger dollar raises the price of gold in other countries' currencies, thus inhibiting demand. Furthermore, India, the world's second-largest gold consumer (with strong demand for gold jewelry), has tightened gold imports and urged its citizens to reduce or even suspend gold and jewelry purchases. The long-term structural support logic for gold: While the macroeconomic environment in 2026 is unfavorable for gold, long-term structural positive factors still exist. Although market prices may experience periodic fluctuations, under the trend of "de-dollarization," central bank gold purchases are likely to remain at a high level as countries diversify their foreign exchange reserves and reduce their dependence on the US dollar. The US debt continues to balloon, its fiscal deficit is unsustainable, and last year the sovereign credit rating of the world's largest economy was downgraded; currently, there is no clear path to a return to fiscal stability. While the author does not subscribe to the doomsday theory of an impending US economic collapse, gold has become a high-quality hedging asset against the backdrop of large-scale US fiscal expansion. Individual and institutional investors should continue to allocate gold through various financial products as a tool for hedging risks. Escalating geopolitical conflicts are also a major long-term theme. In 2022, Indian Prime Minister Modi told Russian President Putin that "this is not an era of war," but reality has turned out the opposite, and we seem to have entered a new phase of long-term conflict. Will gold see a rise in 2027? My personal judgment is that gold prices are likely to strengthen in 2027. First, after several years of impressive gains, US stocks are expected to consolidate next year. The S&P 500 is expected to achieve double-digit returns for the fourth consecutive year, which is extremely rare in market history. The last time this index achieved four consecutive years of double-digit returns was during the dot-com bubble of the 1990s, which was followed by the stock market crash of 2000. While it's too early to predict a repeat of the 2000 market crash, the valuations of some AI stocks are high, especially those of unlisted private AI companies, which are a cause for concern. Several leading private AI companies plan to go public next year, which will not only draw significant funds from the market but also lead to further speculation in the AI sector in the public market, raising overall risk levels. In such a scenario, gold's safe-haven properties would benefit it. This year's surge in US Treasury yields led to a sell-off in US gold ETFs; next year, investment demand for gold is expected to recover. Overall, with gold prices weakening recently, now is the time to invest heavily in gold; investors with a higher risk tolerance can also consider gold mining stocks. In the short term, the debate surrounding US Treasury yields continues, and gold prices may continue to fluctuate widely, but this yellow precious metal is expected to deliver excess returns next year.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
