- Gold saw extreme volatility in January on the back of persistent structural tailwinds and elevated levels of speculative flows
- Debasement risk and geopolitical uncertainty tailwinds have intensified over time, driving increased risk-hedging behaviour by investors
- 2025 saw record investment demand for gold; bar and coin demand hit a 13-year high while gold ETF inflows approached levels last seen during the Covid-19 pandemic
- Raise our 1H26 and 2H26 target prices to USD5,300/oz. and USD6,250/oz. respectively; 2030 TP to USD8,060/oz.
- Heightened volatility in precious metal prices underscores additional considerations for gold investors, including hedging exposures and being more cautious with leverage
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Another year of smashing expectations. We are barely a month into the new year, and it would be an understatement to say that gold has defied all investor expectations. The precious metal rallied to a staggeringly new all-time high of USD5,595/oz. on 29 Jan on the back of persistent geopolitical uncertainty (Venezuela, Iran, and most recently Greenland) and a slew of dollar negative developments (criminal probe into Fed Chair Jay Powell and Trump’s comments favouring a weaker greenback) before reversing course and melting down more than 15% in the wake of Kevin Warsh’s nomination as the next Fed Chairman. These substantial price swings speak to the elevated levels of speculative flows in the precious metals space amid persistent macro policy risk and geopolitical uncertainty. But beyond speculative flows, we believe there is an ongoing shift in investor attitudes that is driving adoption of gold as a mainstream portfolio hedge.
Same tailwinds, greater intensity. This recent bout of extreme volatility serves as a reminder that attempts at timing the market rarely work out as intended. Having said that, we encourage investors to look past prevailing market volatility and focus on gold’s fundamental drivers. We have long touted: i) debasement risk; ii) geopolitical and macroeconomic uncertainty; and iii) central bank buying as structural tailwinds for gold, and we believe they continue to be in play today. In fact, many of these tailwinds have intensified over time. We elaborate on each of these tailwinds below, exploring how they have changed over time in terms of scope and magnitude.
Debasement risk
Widening scope of debasement risk. Worries about fiscal sustainability and fiat currency debasement have worsened over time. What started out as primarily a US concern has evolved into a global risk as other countries ramp up their fiscal spending. Europe, with its multi-year rearmament drive, is set to increase defence spending from 2% to 5% of GDP by 2035. Japan’s Takaichi has also announced plans for expanded government spending and tax cuts following her landslide victory in February’s snap elections. China’s growth has, for years, been tied to government policy stimulus. ASEAN countries such as Thailand, Vietnam, and Indonesia are also walking a tightrope between stimulative spending and managing debt. On the US front, debasement risk has also expanded to capture anything that is perceived as a threat to Fed independence (as evidenced by gold prices reacting to Trump’s criminal probe into Fed Chair Jerome Powell). In summary, the scope of debasement risk has widened over the past year and that will continue to drive the appeal of gold as a fiat currency debasement and dollar hedge.
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