Gold's outlook for 2026: Expect returns to moderate after scorching run-up

While existing investors should do partial rebalancing, new investors should enter in a staggered manner

Gold has been among the strongest-performing asset classes in India in 2025, delivering a return of 73.9 per cent year-to-date. After such a strong rally, experts say investors should avoid chasing past returns and instead focus on rebalancing, and maintain a disciplined allocation to the yellow metal in 2026.

 

Central bank buying, rate cuts could support prices 

One of the most important drivers of the rally has been sustained buying by central banks, particularly in emerging markets, as they diversified away from the US dollar and US treasuries. “Since 2022, many of them have been on a gold-buying spree, realising the benefits of increasing the share of gold in their overall reserves, especially after the freezing of Russian foreign assets by Western countries,” says Nilesh D. Naik, head of investment products, Share.Market (PhonePe Wealth). This structural demand is unlikely to disappear in the near term. 

Another key factor is expectations around US monetary policy. A non-interest-yielding asset, such as gold, tends to perform well when real interest rates soften. “There is a high possibility of the Fed cutting rates amidst an employment slowdown in the US,” says Sandip Raichura, chief executive officer (CEO) of retail broking and distribution and director, PL Capital. 

Global gold exchange-traded funds (ETFs) purchased more than 700 tonnes of gold in 2025. “Geopolitical conflicts, trade tensions and policy uncertainty across major economies continue to reinforce gold’s role as a store of value,” says Prasanna Pathak, deputy chief executive officer, The Wealth Company Mutual Fund. Periodic spikes in market volatility could further reinforce gold’s appeal as a safe-haven asset in 2026.

 

For Indian investors, a weakening rupee against the dollar could bolster returns.

 

What could limit returns 

Several factors could cap gold’s upside in 2026. A key risk is the possibility that interest rates may not soften. “There is a possibility of the Federal Reserve turning hawkish, particularly if inflation re-emerges and forces interest rates to stay higher for longer, lifting real yields,” says Manav Modi, commodities analyst, Motilal Oswal Financial Services. Higher real yields and a stronger US dollar would reduce gold’s relative attractiveness.

 

Naik cautions that easing of geopolitical tensions or trade conflicts could dampen safe-haven demand. Modi points out that while central bank buying is expected to continue, purchases may slow from the exceptionally high levels seen in recent years.

 

From an Indian perspective, a period of rupee stability or appreciation could moderate returns even if global gold prices remain firm.

 

Elevated prices may also discourage retail demand, particularly for jewellery. After a strong multi-year rally, profit-taking and valuation fatigue are additional factors that could lead to consolidation.

 

Base-case outlook for 2026 

The broad consensus is that gold is unlikely to repeat the kind of outsized gains seen recently, even as the long-term outlook remains positive. “We expect modest returns in 2026 versus the steep gains over the past few years,” says Aditya Agrawal, chief investment officer, Avisa Wealth Creators. A phase of consolidation with a positive bias appears to be the most likely scenario over the next six to twelve months.

 

Relative valuations also matter. Gold has outperformed equities over the past year, pushing Nifty 50-gold valuation ratios to levels that have historically favoured equities over the medium term.

 

Book partial profits 

Investors who already hold gold should view the metal as a strategic allocation rather than a short-term bet. Gold’s low correlation with both equities and fixed income makes it a useful diversifier.

 

“After the recent rally, investors may be overallocated to gold. They should rebalance back to their strategic allocation,” says Kaustubh Belapurkar, director - manager research, Morningstar Investment Research India.

 

How new investors should approach gold 

Investors looking to enter gold after the sharp run-up must exercise caution and discipline. They should avoid the temptation to chase past returns. Instead, they should first decide how much gold fits within their overall asset allocation, taking into account their goals, time horizon and risk tolerance. According to Belapurkar, an allocation of around 5-10 per cent of the portfolio suffices for most investors.

 

Staggered investments work best in the current environment. Monthly investments through gold ETFs or gold mutual fund SIPs help average out costs and reduce timing risk. Lump-sum investments should be avoided at elevated price levels. According to Agrawal, investors should consider lump-sum investments only if there are interim corrections of 10-15 per cent.

 

According to Pathak, investors seeking balanced exposure across equity, debt and gold may consider gaining exposure to the yellow metal via multi-asset allocation funds.

 

Gold is best held with a long-term perspective. Its price moves in extended cycles, and short-term volatility can be significant. According to Raichura, investors should ideally have a holding period of a decade to overcome cyclicality and benefit from gold’s diversification and hedging properties. 

 

The writer is a Mumbai-based independent journalist