Geopolitical uncertainty and central bank demand fuel expectations for a 20% surge in gold prices

In a strikingly optimistic forecast, JP Morgan has projected that gold prices could climb to $4,000 per ounce by mid-2026, representing a gain of approximately 20% from its current level near $3,340. The bank anticipates the price will reach $3,675 by Q4 2025 before accelerating further in 2026. This projection follows a remarkable 28% rise since the beginning of 2025 and a 44% increase over the past twelve months, reflecting a growing trend of global flight to safety.

A Structural Shift in Gold’s Role

According to JP Morgan analysts, this rally in gold is not merely a temporary response to volatile markets. Instead, they argue, it reflects a structural shift in how gold is perceived and used by investors and governments alike. Historically known as a hedge against inflation and economic downturns, gold is now being increasingly seen as a strategic asset in the face of currency instability, geopolitical fragmentation, and central bank policy uncertainty.

Natasha Kanaba, Global Head of Commodities at JP Morgan, stated: “Gold is reemerging as a central pillar in portfolios due to persistent concerns over stagflation, slowing global growth, and monetary policy volatility. Investors are increasingly drawn to gold as a stable store of value that operates outside the confines of traditional capital markets.”

The Road to $4,000: Key Drivers

Several factors underpin the bank’s forecast:

1. Geopolitical Risk: The ongoing conflict between Israel and Iran, coupled with broader Middle East tensions, has triggered renewed interest in gold as a crisis hedge. Even a temporary ceasefire has failed to alleviate long-term concerns about regional instability, driving investors toward safe-haven assets.
2. Central Bank Buying: Central banks around the world are expected to purchase over 900 metric tons of gold in 2025, continuing a multi-year trend of reserve diversification away from the U.S. dollar. As of mid-2025, central banks hold around 36,200 metric tons of gold, accounting for 20% of their official reserves—up from just 15% at the end of 2023.
3. Weak Dollar and Low Interest Rates: Should the Federal Reserve lower interest rates too aggressively, as some forecasts suggest, it could further weaken the U.S. dollar and reduce the attractiveness of bonds, making gold comparatively more appealing.
4. Retail Demand: Individual investors are also playing a role in the gold surge. In 2024 alone, private gold holdings rose to 49,400 metric tons, with physical bullion and coins accounting for nearly 45,400 tons. Exchange-traded funds (ETFs) also attracted 310 metric tons of inflows year-to-date, with growth particularly strong in China (70%) and the U.S. (9.5%).

Quantitative Projections and Price Path

JP Morgan’s revised forecast raises its previous expectations across all quarters in both 2025 and 2026. The most recent projections now show gold prices averaging:

Q4 2025: $3,675 (vs. prior $2,950)

Q2 2026: $4,000 (vs. prior $3,000)

This reflects a 25% upward revision for Q4 2025 and a 34% increase for Q2 2026 compared to earlier expectations. The average price forecast for 2026 stands at $4,068—up 35% from prior estimates.

A Global Race to Gold: Central Banks Lead the Way

A closer look at gold reserve allocation reveals significant disparities between countries. According to data compiled by JP Morgan, several European nations maintain exceptionally high gold reserves as a share of total reserves

Portugal: 81%

Uzbekistan: 77%

U.S.: 76%

Germany: 76%

France: 73%

Italy: 72%

In contrast, countries such as China, Japan, Saudi Arabia, and Taiwan allocate less than 10% of their reserves to gold. These variations highlight diverging monetary strategies, with Western nations leaning heavily on gold for long-term stability while Asian economies remain more diversified in foreign currency holdings.

Institutional Strategy: A Hedge Against Policy and Political Risk

JP Morgan’s forecast also reflects growing concern about U.S. fiscal and monetary policy. With the Fed currently facing pressure from political figures—including former President Donald Trump—to cut interest rates amid rising tariffs, the risk of policy missteps is rising. Gold offers a rare hedge in this context, decoupled from both U.S. monetary tightening and the equity market’s volatility.

Kanaba emphasized: “In an environment where policy credibility is increasingly questioned, gold serves as a store of value that central banks and investors can rely on.”

Risks to the Outlook: What Could Go Wrong?

Despite its bullish stance, JP Morgan acknowledges several downside risks to its forecast:

Resolution of Geopolitical Conflicts: A long-term peace agreement in the Middle East or normalized trade relations between major powers could reduce demand for safe-haven assets.

Faster-than-Expected Rate Cuts: If the Fed cuts rates too quickly and inflation expectations stabilize, the urgency to hold non-yielding assets like gold could diminish.

Strengthening Dollar: A reversal in dollar weakness, driven by improved U.S. growth or capital inflows, could also weigh on gold prices.

Private Investors Add Fuel to the Fire

Beyond central banks, retail and institutional investors are also flocking to gold. ETFs have seen inflows of over 310 tons since January, while physical demand for bullion and coins remains robust. In total, retail investors now hold gold worth over $5 trillion, levels last seen during the 2011 bull market. The broadening investor base further legitimizes gold as a mainstream portfolio asset.

Strategic Implications for Portfolios

For investors seeking diversification and stability, JP Morgan’s forecast reinforces gold’s role as a core holding. The metal’s ability to outperform during monetary easing cycles, geopolitical unrest, and market dislocations makes it a strategic hedge for both retail and institutional portfolios.

Conclusion and Market Outlook

With gold already up over 40% in the past year and new highs on the horizon, JP Morgan’s forecast signals confidence in gold’s renewed role in the global financial system. While short-term risks remain, the structural case for gold—driven by central bank behavior, macroeconomic shifts, and investor psychology—is stronger than ever.