Geo-economic tensions, policy shifts could shape gold prices in 2026 - World Gold Council

Thu Jan 15 2026

After a record-breaking 2025, the World Gold Council’s 2026 outlook warns that rising geo-economic tensions, policy shifts, and investor demand could shape gold prices this year, if current conditions persist.

This leaves major African exporters like Ghana, Mali, and South Africa particularly exposed to market swings.

Unfortunately, despite holding vast gold deposits, the Democratic Republic of the Congo (DRC) records low official production and export quantities because most of its gold is produced by the informal artisanal sector and is smuggled out of the country.

According to the outlook, the precious commodity experienced a remarkable 2025, achieving over 50 all-time highs and returning over 60 per cent, a performance that was supported by a combination of heightened geopolitical and economic uncertainty, a weaker US dollar, and positive price momentum.

As a result, both investors and central banks increased their allocations to gold in their search for diversification and stability.

Looking into 2026, the report says that the price of gold will likely see moderate gains if economic growth slows and interest rates fall further.

“In a more severe downturn marked by rising global risks, gold could perform strongly. Conversely, a successful outcome from policies set by the Trump administration would accelerate economic growth and reduce geopolitical risk, leading to higher rates and a stronger US dollar, pushing gold lower,” the report cautions.

Additional factors, such as central bank demand and gold recycling trends, could also influence the market.

However, it notes that gold’s role as a portfolio diversifier and source of stability remains key amid continued market volatility.

Gold prices' impressive surge last year saw it emerge as one of the strongest-performing assets in 2025.

“This historic rally, gearing up to be gold’s fourth strongest annual return since 1971, has been driven by a combination of factors. At a macro level, two stand out: a supercharged geopolitical and geo-economic environment, generalised US dollar weakness and marginally lower rates. This environment has resulted in a broader push for portfolio diversification amid lacklustre bond returns and concerns of frothiness in equity markets. Against this backdrop and further supported by gold’s positive momentum, investment demand has surged across all regions from West to East,” the report explains.

At the same time, central banks continued their buying spree with an above-average demand.

“Within the two factors above, the combined effect of heightened geopolitical risk and US dollar weakness accounted for roughly 16 percentage points. This underscores the outsized influence of politics and macro uncertainty on gold’s performance so far during Trump’s second term,” the report says.

It notes that while markets expect the status quo to continue, economic surprises and rising geopolitical tensions keep the uncertainty high.

“This year, markets are largely pricing in a continuation of the status quo, but concerns about a softening US labour market are mounting, while debates persist over whether inflation will stay stubbornly high or face renewed upward pressure. At the same time, and despite some progress, geopolitical frictions continue to simmer,” the document notes.

The combination of lower interest rates and a weaker dollar, paired with heightened risk aversion, would therefore create a continued supportive environment for gold.

“Our analysis shows that, in this environment, gold could rise 5 per cent – 15 per cent in 2026 from current levels, depending on the severity of the economic slowdown, and the speed and magnitude of the rate cuts,” it says.

Moreover, the report shows that gold investment, which has been critical to this year’s performance, still has room to grow.

“Despite the plausibility of a bearish scenario, it is likely that investors will maintain some exposure to gold given the unpredictability of current geo-economic dynamics. In addition to investment demand, central banks and recycling can provide additional support. But, under certain conditions, they can also become headwinds,” the report adds.

While central banks' demand remains a significant contributor to gold’s performance, the report cautions that the decision process for central bank gold buying is often dictated by policy rather than market conditions alone.

A significant pullback in purchases to or below pre-Covid levels could create additional headwinds for gold.

Recycling flows could also become a significant swing factor. Much as it has been relatively muted this year, after accounting for factors such as the rise in the gold price and the effect of economic growth, this phenomenon has been linked to a notable increase in the use of gold as collateral for loans.

In India, for instance, consumers have pledged more than 200t of gold jewellery through the formal sector this year alone. And anecdotal evidence suggests there is almost as much gold backing loans from the informal sector.

“If recycling remains subdued, with gold being used as collateral instead, it will continue to provide support. But a marked economic slowdown in India could trigger forced liquidations of gold-backed collateral, boosting secondary supply and adding pressure to prices. And while there is a widespread positive perspective for India’s economy, a severe global downturn could create a spillover effect,” the report says.

It ends with a call for 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,” the report concludes.

Source: https://eastleighvoice.co.ke/