Agio Gold Sector Fund Market Update December 2025

Gold has had an exceptional 2025, reaching over 50 new record highs and delivering a return exceeding 60%. This strong performance was driven by a combination of global uncertainty, a weaker US dollar, and positive market momentum. Investors and central banks have both significantly increased their gold holdings for diversification and stability.

As we look to 2026, the gold outlook remains shaped by continued global economic uncertainty. While the price currently reflects a general agreement (consensus) on macroeconomics and may stay within a tight range if conditions remain the same, history shows 2026 is likely to bring surprises.

• If economic growth slows and interest rates decline further, gold could see moderate gains.
• In a more severe global downturn with rising risks, gold could perform very strongly (bullish scenario).
• Conversely, if the Trump administration’s policies lead to a successful economic boom accelerating growth, raising interest rates, and strengthening the US dollar gold prices would likely fall (bearish scenario).

The market will also be influenced by the continued gold-buying by central banks and changes in gold recycling trends. Critically, gold’s fundamental role as a reliable portfolio diversifier and source of stability will remain paramount amidst ongoing market volatility.

After hitting over 50 all-time highs and a 60%+ return by the end of November, gold was one of the strongest assets in 2025. This historic rally set to be its fourth strongest since 1971 was fueled primarily by:

• A heightened geopolitical and geoeconomic risk environment.
• General US dollar weakness and slightly lower interest rates.

This climate encouraged a broad move toward portfolio diversification, given the lackluster returns from bonds and concerns about excessive enthusiasm (“frothiness”) in equity markets. This led to a surge in investment demand worldwide, supported by gold’s positive momentum.

Central banks continued their active buying, keeping demand well above average. Our analysis indicates that the high-risk environment and reduced opportunity cost (weaker dollar/lower rates) were the main drivers, accounting for a significant portion of the year-to-date return. The diverse forces driving gold, including momentum and economic growth, suggest a market not reliant on a single factor.

Markets are currently pricing in a continuation of the current situation, but differences in economic data and geopolitical tensions mean high uncertainty. We’ve outlined three potential paths for 2026, challenging the market consensus:

This scenario is driven by a gradual US economic slowdown and declining risk appetite among investors, prompting a shift toward safer assets.

• Conditions: The US labor market softens, consumer spending weakens, and global growth slows. Equity markets, especially tech, could face an additional drag if AI expectations are reset.
• Central Bank Action: The Fed cuts rates more aggressively than currently anticipated to address cooling inflation and economic uncertainty.
• Impact on Gold: The combination of lower rates, a weaker dollar, and increased risk aversion creates a supportive environment. Gold could rise 5%–15% in 2026. This solid return would be a noteworthy follow-up to the strong 2025 performance. Strategic central bank buying and new investment from funds in regions like China and India could provide further support.

This represents a more severe global downturn, triggered by a sharp rise in geopolitical and geoeconomic risk (e.g., trade wars, new conflicts).

• Conditions: Tensions erode confidence, causing businesses to scale back investment and households to drastically cut spending. This creates a self-reinforcing “doom loop.” US growth weakens significantly, and inflation falls below target.
• Central Bank Action: The Fed cuts rates very aggressively. Long-term yields and the US dollar fall sharply.
• Impact on Gold: This combination of low yields, high geopolitical stress, and a pronounced flight-to-safety creates exceptionally strong tailwinds for gold. Gold could surge 15%–30% in 2026. Investment demand, particularly through gold ETFs (exchange-traded funds), would be the key driver, offsetting potential weakness in other areas like jewelry.

This is the upside scenario where the Trump administration’s policies succeed, leading to stronger-than-expected growth fueled by government spending (fiscal support).

• Conditions: Strong economic activity leads to a “reflation” environment, pushing global growth higher. Inflation pressures mount.
• Central Bank Action: The Fed is forced to hold or even raise rates in 2026. Long-term yields rise, and the US dollar strengthens significantly.
• Impact on Gold: Rising yields, a stronger dollar, and a shift toward risk-taking (risk-on positioning) heavily weigh on gold. This scenario would lead to a gold price correction of 5%–20%. Gold ETFs would likely see sustained outflows as investors move capital into higher-yielding assets and equities.

Beyond the main scenarios, two unpredictable factors or “wildcards” could materially influence the market:

• Central Bank Demand: Purchases by central banks remain a significant contributor to gold’s performance, particularly those from emerging market countries, whose gold reserves are still low compared to developed nations. Escalating geopolitical tensions could accelerate this buying.
• Gold Recycling: Recycling flows have been unusually muted, partly because gold is increasingly being used as collateral for loans, which keeps it off the market. If this trend continues, it supports the price. However, a severe economic downturn in key markets like India could force the liquidation of gold-backed collateral, boosting secondary supply and adding pressure to prices.

Gold’s path for 2026 will be defined by the uncertain economic climate. While the current price suggests a stable, rangebound performance based on consensus expectations, our analysis indicates that the forces supporting gold softer growth, accommodative policy, and persistent geopolitical risks are more likely to prevail than those that would undermine it. Investors should maintain some exposure to gold due to the high unpredictability of current geoeconomic dynamics. Gold’s role in providing diversification and downside protection remains highly valuable.