Is It A Golden Era For Gold?

Is It A Golden Era For Gold? 

JP MORGAN 

Gold stands at the crossroads of global uncertainty and enduring resilience. Here, we explore the factors driving the price of gold and consider the important role it plays in portfolio diversification.  Gold prices have more than doubled since late 2023, repeatedly hitting all-time highs in a sustained rally. The precious metal outperformed major equity benchmarks in 2025 with an eye-popping 65% return,1 its strongest single year since 1979, then built on those gains in early 2026.

A sought-after commodity for centuries, gold has been a popular component in investment portfolios in modern times, and has delivered attractive annual returns of approximately 12% over the 20 years ending in 2025.

That said, its price can be volatile: Gold sank 9.8% on January 30, surrendering about half its prior 2026 gain in the biggest one-day loss since 2013. Weakness in gold prices can be prolonged, as gold tumbled approximately 40% from September 2011 to December 2015, and did not fully recover until August 2020.

This combination of a historic rally and historic volatility would seem to challenge the case for investing in gold today. However, we remain firmly bullish on gold in 2026, and recently raised our outlook to a range of $6,000 to $6,300 per ounce.

The recent sell-off may present a potential entry point for long-term investors, and see potential for further upside as investors look to diversify dollar exposure, hedge geopolitical risk and guard against inflation surprises.

To explain why, we’ll dig into the complex interplay of macro factors and supply/demand dynamics that influence gold prices.

Understanding gold’s unique characteristics and benefits is crucial for investors who are looking to establish portfolios that endure through cycles. We will show how the key drivers of gold prices have evolved in recent years, and how an appropriately sized allocation to gold can add value to a portfolio.

What drives gold prices?

The level of the U.S. dollar

As gold is denominated in U.S. dollars, gold prices have often exhibited a negative correlation with the value of the dollar. When the dollar weakens, gold becomes more relatively attractive for holders of other currencies, increasing demand. Conversely, gold prices tend to weaken as the dollar strengthens.2

However, there are instances when this relationship does not hold. For example, in 2012–13, gold lost 18% of its value even though the dollar remained relatively stable, rising less than 1%. We think a relatively weak dollar will present a stable and benign backdrop for gold prices over the next six to 12 months.

Following a year of significant weakness, the dollar is entering a bumpy process of bottoming, as shown in the chart below. In our base case, we anticipate that the U.S. economy could gradually recover over the second half of the year, potentially coinciding with improvements in other major economies such as Europe and Japan. Lingering concerns over Federal Reserve (Fed) independence and U.S. fiscal sustainability may also limit the dollar’s strength.

The U.S. dollar environment is largely benign; we expect the dollar to stabilize, tracking the moves in interest rate differential

DXY model based on 5Y swap rate differentials

CHART:  LINK https://privatebank.jpmorgan.com/nam/en/insights/markets-and-investing/is-it-a-golden-era-for-gold

Change in real yields

Historically, gold prices have generally had an inverse relationship with real yields (inflation-adjusted interest rates). As gold does not generate interest income, real yields can be seen as the opportunity cost of holding it. When real yields go down, gold becomes more attractive relative to interest-bearing assets such as cash and fixed income securities.

This relationship explains a large part of the price increase in gold since the 1990s, a period of structural decline in real yields. Large gold rallies such as those in 2008–2012 and 2019–2021 can also be attributed to real yields turning negative due to global quantitative easing and zero interest rate policies.

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