The latest study from the World Gold Council (WGC) shows that the underlying force behind gold's recent strength is still in place.
In a report, "Why gold in 2026?" WGC explains how risk assets have delivered surprisingly strong returns, yet the foundations beneath that performance appear increasingly fragile.
Equities trade at elevated forward multiples, credit spreads remain compressed, and consensus GDP forecasts imply a resilience that contrasts sharply with historically high readings in economic policy uncertainty. High conviction in growth occurring alongside extreme uncertainty is precisely a thriving environment for gold.
WGC argues that the market is overlooking unresolved structural risks, as strong investor optimism and supportive policy conditions continue to lift equities, credit, and commodities.
Yet geopolitical tensions persist, output gaps in major economies remain narrow, and inflation still lingers. Such conditions limit policymakers' room to respond to future shocks. Thus, gold's recent strength is not exuberance – but hedging demand against risks that investors appear to be underestimating.
The Underallocation Diagnosis
Furthermore, gold remains strategically under-owned. Despite strong price appreciation in recent years, private gold investment as a share of global equities and bonds remains low. It's currently barely above 2% (the lower bound of the optimal allocation), while the upper bound is 8%.
Institutional portfolios remain geared to the traditional 60/40 ratio. That approach leaves gold a modest allocation – relative to its historical role as a drawdown mitigator.
Yet, at the same time, bonds are less effective than before. Falling yields and a negative stock-bond correlation allowed Treasuries to cushion equity sell-offs. But that relationship has weakened.
Inflation shocks, most notably in 2022, led to declines in bonds alongside equities. With core inflation still above central bank targets and fiscal deficits expanding, yields may face upward pressure. In such an environment, the opportunity cost of holding gold may rise tactically, but structurally, gold benefits from inflation-hedging demand and from a higher stock-bond correlation that reduces bonds' diversification value.
The Margin Debt Alarm
WGC also notes debt as a silent factor. US margin debt (funds borrowed to purchase equities) has surged, outpacing the growth rate of the S&P 500.
History shows that excessive yearly increases in margin debt relative to equity returns have preceded major bear markets. Such dynamics occurred during the dot-com bubble and the Great Recession.
Since leverage amplifies both upside momentum and downside risk, forced deleveraging becomes a catalyst for safe-haven demand. A lack of downside protection, as signaled by the recent Bank of America survey, only worsens this risk.
Thus, for investors, the message is clear. Despite an outstanding performance in 2025, gold remains more of a structural hedge than a momentum trade going forward. And it might be one that markets are still underpricing.
Price Watch: SPDR Gold Shares (NYSE:GLD) is up 20.48% year-to-date.
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