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Thought of the day

Gold’s resilience has been on display this week, even as markets have shifted back to risk-on mode following a de-escalation of geopolitical tensions. Speaking at the World Economic Forum conference in Switzerland, US President Donald Trump ruled out US military intervention in Greenland, reversed course on planned European tariffs, and announced a framework agreement with NATO over Greenland’s future governance. This series of moves helped calm investor nerves and triggered a broad-based rally in risk assets. The S&P 500 has now rebounded about 1.7% over the past two sessions, and the VIX volatility index has eased back toward its long-term average.

Still, that has not constrained the rally in gold prices, which hit a record intra-session high above USD 4,959/oz early Friday amid dollar weakness. Although details of the new Greenland framework have yet to materialize, Trump late Thursday characterized it as a "total access" deal that will allow US military expansion in Greenland "at no cost." The Danish prime minister noted the need for a "permanent presence" from NATO in the arctic, but that any discussions must respect Denmark's status as a sovereign state. The wider EU stance on resuming trade talks following the dispute with the US is still unclear, though the immediate threat of a transatlantic trade conflict appears to have receded, supporting a more constructive tone across global markets.

We welcome this diplomatic calm. But we think it won't constrain gold’s upward trajectory, with several factors supporting higher prices ahead:

The potential remains for renewed geopolitical tensions. Europe’s current breakthrough in defusing the Greenland situation has demonstrated that at this stage, nations can unite to constructively address forceful moves from the US administration and other superpowers. It follows Canadian Prime Minister Mark Carney’s call for collective action against economic coercion by larger trading partners. However, it also raises the risk of renewed standoffs and more assertive responses from smaller economies to future provocations. The US is not the only superpower that needs to be considered. China in recent weeks has again shown its willingness to leverage rare-earth exports in disputes with the US, Japan, and Europe.

Gold has once again demonstrated its utility as a portfolio hedge. With the latest rise to new record highs, gold is up around 14.5% this year, adding to last year’s 65% surge. In this latest episode, it acted as a better offset to equity pressure than bonds on a portfolio basis. Beyond Greenland, lingering geopolitical flash-points (like Iran, Gaza, or Ukraine) and domestic uncertainties around US court decisions and mid-term elections could again stoke periodic price rises. Demand is further supported by worries over Federal Reserve independence and a global shift away from fiat currencies. We forecast central bank gold buying to rise to 950 metric tons in 2026, alongside steady demand from investors.

Macroeconomic conditions remain supportive for gold. We think labor market softness should allow the Fed to cut rates again, as soon as this quarter. At the same time, inflation has been a bit more sticky than expected, and remains above central bank targets. This means real yields are likely to fall further as monetary policy eases. Gold’s non-yielding nature becomes more attractive in a lower-rate environment, especially as fiscal concerns mount and US debt levels rise. Persistent policy uncertainty and the potential for economic softness could prompt further central bank action, providing additional tailwinds for gold prices.

So, we think the case for gold remains compelling, and we continue to hold it in our global portfolios. For investors with an affinity for the asset class, we view a mid-single-digit allocation to gold as appropriate within a diversified USD portfolio. With our base case gold price target of USD 5,000/oz within reach, we are increasingly focused on our upside risk case of USD 5,400/oz. More broadly, we believe commodities (including both industrial and precious metals) can play a larger role in portfolio performance in 2026. At the same time, we remain constructive on global equities, supported by healthy growth and earnings trends, and view this recent bout of volatility as an opportunity to build diversified exposure.