The gold market appears to be stuck around $4,200 an ounce, but Bank of America still sees plenty of potential for higher prices in 2026.
In his annual outlook webinar, Michael Widmer, Head of Metals Research at BofA, said that gold bull rallies typically peak only when the underlying motives that initially triggered the rally fade, and don’t end simply because prices rise.
“ I’ve highlighted before that the gold market has been very overbought. But it's actually still underinvested,” he said. “There is still a lot of room for gold as a diversification tool in portfolios.”
Widmer added that he doesn’t see the bullish environment ending anytime soon. For next year, the bank expects gold prices to push to $5,000 an ounce.
He noted that it would take only a 14% increase in investment demand to reach that target. Investment demand has roughly averaged that level over the last couple of quarters. Meanwhile, it would take a 55% increase in investment demand to drive gold prices to $8,000 an ounce next year.
Investment demand—particularly among retail investors—has surged in recent months, with year-to-date inflows into gold-backed exchange-traded funds reaching their highest level since 2020. However, Widmer said there is still a key segment that has largely ignored the gold market, and that could change in the new year.
With gold’s more than 50% rally this year, the precious metal now represents about 4% of the total financial market.
However, within the professional investment sector, Widmer noted that high-net-worth investors hold only 0.5% of their assets in gold.
Growing interest in gold comes as many investors continue to question the reliability of the traditional 60/40 portfolio allocation. Widmer said research now shows that holding 20% of a portfolio in gold can be an effective strategy.
“When you run the analysis since 2020, you can actually justify that retail investors should have a gold share of well above 20%,” he said. “You can even justify 30% at the moment.”
But it's not just retail investors who stand to benefit from further diversification into gold. Widmer said he expects central banks to continue buying gold even as official reserves hit milestone levels this year.
He noted that central bank gold reserves have surpassed their holdings of U.S. Treasuries. Gold now represents, on average, about 15% of total central bank reserves. However, his modeling indicates that reserves would be fully optimized with an average gold allocation of around 30%.
“Whichever portfolio you're looking at, whether it's a central bank portfolio or an institutional portfolio, they can benefit from diversification into gold,” he said.
Widmer added that gold’s 50% price gain this year means it will be difficult for some portfolio managers to ignore in the new year.
“Just looking at benchmarks, gold has been one of the best-performing assets for the past few years,” he said. “ What we've heard a lot of the time is that ‘gold is a non-yielding asset; it costs to hold it; you don't make any money from it, so what's the point of actually holding it?’ But just from a pure direction perspective, gold could have actually made a good contribution to a portfolio. I think the numbers speak for themselves.”
As for what could ignite another rotation into gold, Widmer said U.S. monetary policy will be an important factor next year. He noted that his modeling suggests that during an easing cycle—when inflation is above 2%—gold prices have risen by 13% on average.
“You don’t even need to see cuts at every meeting,” he said. “You just need to see that rates are going down.”
Currently, markets are pricing in two rate cuts next year. Fixed-income analysts at Bank of America are in line with those expectations but have also warned of downside risks to interest rates in 2026.
