Even before last weekend’s US military action against Venezuela, there was ample reason to believe 2026 would be another good year for gold prices. Following that action, there is even more reason to be bullish on gold. In addition to worries about inflation and shaky public finances in several major global economies, there is now heightened geopolitical risk about which to be concerned.
In addition, there would now seem to be increased reason for foreigners to be wary about holding dollar-denominated assets that could be frozen by the US government. Last year, gold seemed to have secured its place as the world’s dominant safe haven asset. While an international trade war and heightened financial market volatility should have favoured the dollar as a safe haven asset, it was gold to which investors gravitated.
This left the dollar and crypto in the shade as safe haven assets. Among the gold market’s fundamental underpinnings in 2025 was concern that the parlous state of US public finances, with Donald Trump’s relentless attacks on the Federal Reserve’s independence, would increase long-run US inflation. Supporting this view was Trump’s One Big Beautiful Bill Act, which was estimated to add about $3.4-trillion to the US budget deficit over the next decade.
Read Full Article on Business Day
[paywall]
According to the IMF, that would keep the US budget deficit at about 7% of GDP for as far as the eye could see. It would also take the US public debt to GDP ratio to an Italian- and Greek-like 130% by 2034. At the start of 2026 concerns about an irresponsible US budget and monetary policy remain in play.
Far from signalling that he plans to take action to rein in the US budget deficit, Trump is talking about a $2,000 cheque to all low- and middle-income American households, as well as budget support to farmers adversely affected by his import tariffs. The budget could also be compromised should the Supreme Court rule that Trump’s import tariffs, ostensibly imposed on national security grounds, exceeded his authority. Meanwhile, Trump continues to pressure the Fed to drastically lower interest rates, and he is signalling that he will appoint a monetary policy dove to replace governor Jerome Powell when his term expires in May.
That could heighten fears that the US will try to inflate its way out of its debt problem. Another factor that is likely to be in play in 2026 is that gold will continue to have no real competitors as an alternative to the dollar. The euro is weighed down by France’s budget and political woes, extremely weak public finances are undermining Japan’s yen, and the Chinese renminbi remains unconvertible.
Meanwhile, bitcoin’s extreme price volatility last year diminishes cryptocurrencies’ attractiveness as an alternative to the dollar. If last year investors had geopolitical reasons to buy gold, they will have all the more reason to do so this year after Trump’s military action against Venezuela and his threats to Colombia, Iran, Mexico and Greenland. Those actions are likely to embolden China in its claims to regain control over Taiwan.
That could be particularly unsettling considering Taiwan’s position as the world’s dominant semiconductor producer. America’s brazen action in Venezuela is also likely to induce Vladimir Putin to insist on Russia’s territorial claims in Ukraine, which will make a Russia-Ukraine peace settlement difficult to achieve. Trump’s arbitrary action on the international front is bound to make investors in general, and central banks in particular, wary of holding their assets in a form that the US can freeze.
Already last year central banks started shifting their international reserves out of dollars into gold. Gold thus now makes up 20% of their overall international reserve holdings. A continued central bank shift could again be a tailwind for gold prices this year.
[/paywall]
