Gold is having the kind of year that makes portfolio managers rethink everything. It's on track to finish 2025 as the best-performing major asset class in over four decades, leaving the S&P 500 and global bonds looking sluggish by comparison.

But here's the question everyone on Wall Street is asking: After a 60% surge, is this trade getting crowded, or are we still in the early innings of something bigger?

According to the latest outlook from the World Gold Council, the answer has less to do with what gold just accomplished and everything to do with how the macroeconomic landscape evolves over the next year.

What Powered Gold's Monster Year

The precious metal, tracked by the SPDR Gold Shares (GLD), delivered a 60.6% gain through early December and set more than 50 all-time highs along the way.

What made 2025 particularly unusual wasn't just the size of the rally. It was how it came together. The Council broke down the year's performance into distinct drivers, and the list reads like a perfect storm:

• Geopolitical risk contributed 12 percentage points to returns.
• A weaker dollar and lower interest rates added another 10 points.
• Momentum and investor flows boosted returns by 9 points.
• Economic expansion accounted for 10 points.
• Other factors, including central bank purchases, made up roughly 20 percentage points.

In other words, gold didn't rally because of one compelling narrative. It rallied because every lever that typically influences the metal happened to move in the same favorable direction simultaneously.

Global gold exchange-traded funds also played a major role. Net inflows added 700 tonnes in 2025, and cumulative ETF holdings since May 2024 have increased by 850 tonnes. That's significant buying pressure, though still below the peak levels seen in previous bull cycles.

Three Paths Forward for 2026

The Council's base case for 2026 is a range-bound market, but they've sketched out three distinct scenarios that could play out depending on how economic conditions shift. Each one tells a different story about gold's trajectory.

Scenario One: Shallow Slip (Gold Up 5% to 15%)

This is the soft landing scenario. U.S. growth cools without collapsing, the Federal Reserve delivers more than 75 basis points of rate cuts, and the dollar weakens gradually. Inflation continues to moderate, the labor market slows but doesn't crater, and central banks in emerging markets like India and China keep buying.

In this environment, gold posts another solid year with gains between 5% and 15%. Not as dramatic as 2025, but still respectable performance that keeps the bull market intact.

Scenario Two: Doom Loop (Gold Up 15% to 30%)

Now things get interesting. Imagine a synchronized global downturn triggered by escalating geopolitical conflict, financial market turmoil, and collapsing confidence. Economic growth stalls, inflation falls below target, and the Fed aggressively slashes rates to stabilize the economy.

The dollar softens, yields plunge, and investors rush into safe havens. Gold ETF inflows spike as portfolio managers scramble to hedge risk. In this high-stress world, gold could climb as much as 30%.

Here's the kicker: Despite adding over 700 tonnes in 2025, gold ETFs still have considerable room to grow. Compared to past bull cycles, current holdings remain well below peak levels, suggesting significant capacity for further inflows if fear takes over.

Scenario Three: Reflation Return (Gold Down 5% to 20%)

This is the bearish case for gold. If President Donald Trump's fiscal policies successfully reignite growth and inflation heats up again, the Fed may pause rate cuts or even consider hikes. The dollar would rally, long-term yields would climb, and suddenly gold's opportunity cost becomes a real problem.

Investors would rotate out of gold and into equities or higher-yielding assets. A broad risk-on shift would pressure prices, potentially leading to losses of 5% to 20%. ETF outflows could amplify the decline, especially as hedges built since 2022 get unwound in favor of assets with better return potential.

The Wildcards Nobody's Talking About

Beyond the macro scenarios, two factors could surprise markets next year.

First, emerging-market central banks remain well below developed nations when it comes to gold's share of reserve allocations. Any meaningful pickup in their demand would provide structural support for prices, independent of Western investor sentiment.

Second, recycling flows are unusually quiet right now, particularly in India. Over 200 tonnes of gold jewelry were pledged as collateral in 2025. If economic conditions deteriorate sharply, forced liquidations could increase secondary supply and create unexpected downward pressure.

Why Gold Still Matters After a 60% Rally

Despite its explosive run, the strategic case for gold hasn't diminished. The Council emphasized that tail-risk events are becoming more frequent. The Liberation Day shock in 2025 was just one example of how quickly markets can pivot into crisis mode.

In that context, gold continues to function as a diversifier and hedge against the unknowable. While the baseline outlook for 2026 points toward relatively steady performance, the potential for large moves in either direction remains elevated.

The metal's 2025 performance was historic, but whether it's the beginning or the end of this cycle depends entirely on which economic regime emerges next. Investors watching gold in 2026 aren't just betting on the metal itself — they're making a call on the shape of the global economy.