Fueled by unorthodox U.S. economic policies, tight supply in mined markets, and persistent global uncertainties, Bank of America (BofA) projects gold prices could reach $5,000 an ounce in 2026. This bullish forecast has triggered considerable debate among global fund managers, who are now weighing whether to increase their exposure to the precious metal.
BofA strategists, led by Michael Widmer, believe the macroeconomic drivers that propelled gold to record highs in 2025 remain firmly in place. While acknowledging that gold is technically "overbought," they also point out that it is "underinvested," a unique combination that sustains market support despite stretched valuations. BofA now expects gold to average $4,538 an ounce next year. UBS Group has also raised its 2026 mid-year gold price target to $4,500 an ounce, citing similar macroeconomic forces such as potential Federal Reserve (Fed) rate cuts, geopolitical uncertainties, and US policy changes. Goldman Sachs maintains its forecast of gold prices climbing to $4,900 by the end of 2026, noting that central banks' buying pace and potential increase of retail investors including gold in portfolios could drive prices even higher.
Several factors underpin this optimistic outlook. Sustained fiscal deficits in the U.S., geopolitical fragmentation, limited new exploration, ongoing central bank accumulation, and a weakening global growth outlook all contribute to gold's appeal. Moreover, the increasing trend of de-dollarization among many countries and gold's proven ability to act as a "store of value" during market volatility, geopolitical instability, and economic uncertainty further bolster its attractiveness. Central banks, particularly in China, Russia, and emerging markets, have been diversifying away from the U.S. dollar, with central banks acquiring 1,136 metric tons of gold in 2023 alone.
However, the path to $5,000 is not without potential obstacles. A hawkish shift by the Federal Reserve remains a key downside risk. A stronger-than-expected U.S. dollar or a decision by the Fed to hold interest rates steady could also stall gold's momentum. Demand destruction from higher prices is another concern, particularly in the jewelry market, which accounts for a significant portion of gold consumption.
Despite these challenges, many analysts believe that gold's role is evolving beyond a traditional hedge. Some argue it is becoming a strategic reserve asset for institutional investors and sovereign nations. As such, financial advisors often recommend allocating 5%-10% of portfolios to gold, a strategy that remains valid despite the metal's recent surge. Investors can gain exposure to gold through physical gold, gold funds, or investments in mining companies.
The dilemma for global fund managers lies in determining the appropriate level of gold exposure in their portfolios. While BofA's $5,000 target is an aggressive forecast, the underlying factors supporting higher gold prices are compelling. Fund managers must carefully weigh the potential risks and rewards, considering their investment objectives and risk tolerance. The decision to increase gold holdings will likely depend on their assessment of the global economic outlook, the trajectory of U.S. monetary policy, and the evolving role of gold in the international financial system.
