Goldman Sachs Warns Gold Rush in Portfolios May Backfire

Investors continue to pile into gold in early 2026, drawn by its sharp rise over the past year, but a team at Goldman Sachs warns that using it as a safe haven in investment portfolios could lead to poor results. The bank's analysts point to expected gold prices around $4,900 per ounce by the end of 2026, fueled by steady central bank purchases and lower interest rates, yet they argue it does not serve well as a way to spread risk across holdings.

Background

Gold prices have climbed more than 40% in 2025 alone, marking the third year in a row of strong double-digit gains. This run has pulled in buyers from around the world, including central banks that have ramped up purchases since 2022. The shift started after events like the freezing of Russia's foreign reserves following its actions in Ukraine, prompting many institutions, especially in emerging markets, to build gold holdings as part of reserve plans.

Central banks bought a net 244 tonnes in the first quarter of 2025, followed by 166 tonnes in the second quarter and 220 tonnes in the third. Even in October 2025, they added 53 tonnes. Surveys show 95% of central banks expect global gold reserves to grow over the next year, with 43% planning to increase their own stocks—the highest share since tracking began in 2018. No bank plans cuts.

Countries like China hold less than 10% of reserves in gold, far below the 70% levels in places like the US, Germany, France, and Italy. Goldman Sachs sees this gap closing over time, with emerging market banks gradually raising allocations for diversification away from traditional currencies.

Lower interest rates from the US Federal Reserve have also helped. Gold pays no yield, so high rates make it less appealing compared to bonds. As rates fall, that gap narrows, letting gold shine as a store of value. Expectations for more Fed cuts in 2026 support this trend, alongside ongoing geopolitical worries that keep demand steady.

Key Details

Goldman Sachs now projects gold at about $4,900 per ounce by December 2026, up from around $4,323 in late December 2025—a roughly 13% jump. Earlier forecasts from September 2025 called for $4,000 by mid-2026, but updates reflect stronger momentum. Spot prices have held firm, trading near record highs into January 2026.

The bank's investment strategy group highlights a key issue: gold's role in portfolios. While prices may keep rising, it does not lower overall risk when mixed with stocks and bonds. In times of market stress, gold often moves in line with equities rather than against them, failing as a true hedge. Goldman notes that with global growth projected at 2.8% in 2026—above consensus—and US stocks set for gains, gold adds little protective value.

Other Bank Forecasts

Several major banks share upbeat price views but vary on details. J.P. Morgan sees an average of $5,055 in the fourth quarter of 2026, driven by central bank demand and investor interest, with possible peaks at $5,200 to $5,300. Bank of America raised its 2026 target to $5,000, though it warns of short-term dips after 2025's fast climb. Morgan Stanley targets $4,400 by year-end, Deutsche Bank an average of $4,450 with a range from $3,950 to $4,950.

These outlooks rest on similar drivers: central banks averaging over 200 tonnes per quarter, Fed policy easing, and speculative bets in futures markets at high levels. Hedge funds hold net long positions in the 73rd percentile since 2014, betting on further upside, though this raises odds of temporary pullbacks as positions adjust.

"A well-diversified portfolio would have somewhere between 10% and 15% in gold." – Ray Dalio, Bridgewater Associates founder

Dalio made this comment in September 2025 amid gold's rally, reflecting views from seasoned investors on balanced holdings.

What This Means

For investors chasing safety, Goldman's view suggests rethinking gold's place. Prices could hit new highs by late 2026, offering gains for those holding it outright, but blending it into broader portfolios might not shield against drops in stocks or bonds. Central bank buying looks set to continue for at least three more years, providing a solid demand floor less tied to short-term ups and downs.

Lower rates ease gold's main weakness—no income—which could draw more exchange-traded fund inflows. Yet speculative fervor in derivatives means watch for swings if big traders trim bets. Geopolitical tensions, if they ease quickly, pair with steady policy to cap gains, but the base case points to consolidation at higher levels.

Portfolio builders face a choice: treat gold as a direct play on these trends or skip it for better diversifiers. With US growth outpacing expectations and equities strong, over-reliance on gold risks missing broader market lifts. Central banks' steady accumulation—now a core strategy—anchors long-term support, but individual investors must weigh if it fits their risk spread.

Gold's path through 2026 hinges on Fed moves, global reserve shifts, and any flare-ups in world events. Banks like Goldman see the rally extending, yet stress that safety seekers may find better tools elsewhere. Demand from official sectors remains the steadiest force, with emerging markets leading the charge to rebalance reserves over years, not months.