World Gold Council flags another year of volatility as geopolitics, central banks shape outlook
Fri Dec 05 2025
After a year defined by breakneck gains and more than 50 fresh all-time highs, the World Gold Council (WGC) says the forces that powered gold in 2025 — geopolitics, US-dollar weakness and shifting rate expectations — will continue to dominate the landscape in 2026, albeit with a wide range of potential outcomes.
In its new Gold Outlook 2026 report, the WGC notes that gold rose more than 60% in US dollars this year and delivered one of its most powerful annual performances since the 1970s. The safe-haven surge has reflected both global uncertainty and broad investment participation, including renewed buying from central banks and a wave of ETF inflows.
The WGC’s baseline view suggests the gold price is broadly aligned with macro consensus — steady global growth, modest US rate cuts and a slightly firmer dollar — which would imply range-bound trading. But the Council highlights three plausible deviations: a “shallow slip” that lifts gold modestly, a “doom loop” that sends it sharply higher, and a “reflation return” that pulls prices back.
Moderately bullish: A shallow economic slip
The WGC says that in a mild downturn — with softer US labour data, cooling consumption and deeper Fed cuts — gold would remain supported by “lower interest rates and a weaker dollar paired with heightened risk aversion”. In this scenario, the metal “could rise 5–15% in 2026 from current levels”, with the magnitude hinging on the depth of the slowdown and speed of policy easing.
Gold’s historical sensitivity to real yields and the dollar — which the WGC points out are both still cyclically high — further strengthens that case. Additional upside could also come from strategic buyers, with the report flagging potential new entrants such as Chinese insurers and Indian pension funds.
Real rates and the US dollar remain cyclically high
Bullish: The ‘doom loop’ downturn
The “non-zero chance” of a more synchronised global slowdown scenario — triggered by geopolitical strain, trade disruptions or renewed regional conflict — leads to what the WGC calls a self-reinforcing “doom loop”. In this environment, confidence deteriorates, investment stalls and households pull back, while inflation dips below target and the Fed responds with aggressive easing.
The impact on gold is stark under this scenario, with “exceptionally strong tailwinds” potentially pushing prices up 15-30% in 2026, according to the report.
ETF flows would likely be the transmission channel. The report notes global gold ETFs have already added more than 700 tonnes this year, with cumulative holdings up roughly 850 tonnes since mid-2024 — still “less than half of what we have seen in previous gold bull cycles, leaving ample room for growth”, the WGC said.
Investment flows during gold’s current bull run remain below those from previous cycles
Bearish: A reflation revival
On the downside, the WGC said the “most bearish scenario in our outlook” would see Trump-era fiscal policies succeed in driving stronger-than-expected US growth, lifting inflation and forcing the Fed to hold or even hike rates. This would push up yields and the US dollar — classic headwinds for gold.
In that environment, the metal faces a sharp reversal, with rising opportunity costs and a rotation back into equities resulting in a gold price correction of 5-20%. ETF selling could follow as investors unwind hedges established through years of heightened geopolitical tension.
Still, the WGC notes that retail and long-term consumer buying has historically stepped in when prices fall, providing a partial buffer.
Wildcards: Central banks and recycling flows
The World Gold Council emphasises two supply-demand levers that sit outside traditional modelling but could materially swing prices: official-sector purchases and recycling.
Demand from central banks “remains a significant contributor to gold’s performance”, particularly among emerging markets, where gold reserves are still far lower (as a share of total reserves) than those held by advanced economies. Further escalation in geopolitical risk could accelerate EM buying, while a drop back to pre-COVID buying levels would remove a major pillar of support.
Central bank demand has been an important contributor to gold’s performance
Recycling flows, meanwhile, have stayed muted despite higher prices — a trend the WGC links partly to India’s rising use of gold jewellery as collateral against loans. More than 200 tonnes of gold have been pledged through the formal sector this year alone. But this dynamic cuts both ways: an economic shock could force liquidation of pledged gold, increasing secondary supply.
Loans with gold as collateral are on the rise
The bottom line
The WGC concludes that while a bearish scenario is plausible, the balance of evidence favours continued resilience.
“While the current gold price broadly reflects the prevailing macroeconomic consensus and suggests a rangebound performance, our analysis indicates that the forces of softer growth, accommodative policy, and persistent geopolitical risks are more likely to support gold than to undermine it,” the report stated.
“Ultimately, the diversity of possible outcomes highlights the value of scenario-based planning. In a world where shocks and surprises are increasingly the norm, gold’s capacity to provide diversification and downside protection remains as relevant as ever.”
Source: https://www.proactiveinvestors.com.au/