If it hasn’t been said already, the reasons underpinning the gold rally are bountiful. And with the precious metal continuing to soar to new heights towards the end of the year, the question is can it keep up the good form for a third straight year running?
In that lieu, one key driver that could really send gold into overdrive in 2026 is the rise in fiscal concerns in major economies. In particular, gold could really hit the jackpot here as the stars align with the US, Europe, and Japan all needing to fight for fiscal survival.
The case scenario in the US is one that market punters have talked about for a long time now. As the fiscal deficit continues to blow up, it continues to raise a major concern with the US’ debt-to-GDP ratio hitting over 120%.
As things continue down this path, the main worry is that the US is pretty much stuck in a ‘debt spiral’. And that is one that lawmakers and policymakers will find it tough to get out of.
Trump’s recent policies are aimed to try and address that somewhat. In trying to address the deficit, he knows that he has to somehow increase federal revenue. And that is where tariffs come in.
I mean, that is what happens when for every dollar the government collects, they pretty much have to spend nearly 20% on interest costs before allocating the money to serve their agenda.
And that’s also in part the reason why Trump wants to pressure the Fed into cutting rates further. That is to reduce the cost to service this debt. But in turn, that turns into a major risk for the US dollar and it is one that we’re seeing the greenback punished for this year.
And amid the de-dollarisation and debasement trade, it still stands to reason why investors will want to seek gold as a suitable alternative.
Then, there is also Europe.
The case in the euro area is defined as a push and pull between France and Germany. The former is already a fiscal red flag for the region with French bond yields even trading above Italy’s at this stage. And that says a lot considering how Italy has always been the poster boy for bad fiscal reputation in Europe.
Amid a flagging economy and political uncertainty, France is in a crippled state and is one that will continue to pose worries to the euro area next year.
Meanwhile, Germany is quite the opposite. They have decided to loosen the purse strings and push forward with the end of austerity. The central bank has to strike a balance in keeping rates in a sweet spot, just low enough to keep France out of trouble but high enough to not see a debasement of the euro currency as Germany begins to borrow its way out of stagflation.
And lastly, there’s Japan. New prime minister, Sanae Takaichi, is a big fiscal dove and her plan is to try and go big on spending to “grow” their way out of a 250% debt-to-GDP ratio. Well, good luck with that.
The issue with her plan is that it runs against what the BOJ has been doing recently and what the central bank plans to do next year. And that is already evident in the December monetary policy decision this month.
The BOJ wants to normalise policy further but in raising interest rates, it is incurring more cost to the government in trying to services this massive and ballooning debt.
Amid all this, the Japanese yen is the one being caught in the crossfire and being sacrificed in order to try and allow for Takaichi’s ambitions to take flight. But in losing its status as a traditional haven currency and a slow rush to the exits, it once again opens up a debasement angle and one for gold to take advantage of.
The trio of fiscal predicaments above highlight a continued opportunity for gold traders to work with come next year. Even if major central banks might put a stop to rate cuts, the fact that central bank demand is still strong – with good reason – stands to reason that gold might not lose too much shine.
A case of a debasement of currencies and a ‘rebasement’ of gold seems to be a strong reason for gold to keep the rally going. But as always in trading, do be wary of any consensus trade
