Spot gold hit a new record high on Wednesday, surpassing $5,200 per ounce for the first time, bringing its cumulative gain for the first month of the new year to over $880 (or 20%). This surge extends a powerful rally fueled by a weak US dollar and a flight from sovereign bonds and currencies.
According to analysis from a Canadian bank, the explosive momentum in gold and silver prices reflects a shift in the global market landscape. Growing uncertainty about the future of government balance sheets and the resilience of fiat currencies is now a dominant force driving investor sentiment. Commodity analysts at BMO Capital Markets, in their latest precious metals report, conducted a bullish thought experiment, examining the current drivers for gold and their implications for price action for the remainder of the year. The analysts noted that gold's breach of $5,000 per ounce in the very first month of the year has already surpassed their price forecast for the first quarter, which was made back in December. "The world has changed. A call on gold and precious metals is a call on the future state of the world, and the nature of the transition that gets us to that state," the analysts stated. "This prompted us to consider a bullish price scenario for the years ahead, as a new world order is established, potentially forming two dominant spheres of influence, with middle-ground nations forced to choose sides." Although gold has been pushed to new historic highs as investors once again embrace the "sell America" trade, while the dollar and bond markets struggle, the BMO analysts pointed out that this is a global issue underpinning broad-based demand for gold. "Last week's massive sell-off in Japanese bonds and the resulting violent moves in the yen further stoked concerns about traditional safe-haven assets," the analysts said. "For this bullish scenario, we extended the assumptions for our model inputs to reflect a world where various investor classes continue to accumulate gold at a pace similar to, or even exceeding, that of the first year of a potential second Trump term. Assuming central banks purchase an average of 8 million ounces per quarter and ETFs see average quarterly inflows of 4-5 million ounces, coupled with persistent erosion in real yields and the dollar, this leads us to a bullish scenario where gold could reach approximately $6,350 per ounce by Q4 2026, and around $8,650 per ounce by Q4 2027." Despite seeing significant upside potential, the BMO analysts have not yet formally adjusted their price forecasts from December. They indicated that the current challenge in the gold market is that predictive models have become outdated, as the global order and financial system may be undergoing disruption on a scale not seen since World War II. "A long-term model with a look-back period of more than about five years fails to capture the price of gold," the analysts commented. "Our updated five-year regression model shows the strongest statistical significance with central bank holdings and ETF liquidity. This timeframe is also sufficient to capture the overall inverse correlation between the US dollar, long-term Treasury yields, and gold prices, although this relationship does not hold consistently. Since 2020, we have observed a negative correlation between gold and the DXY index only 78% of the time. The correlation between gold and equities, while weaker, has now turned positive." BMO analysts are also adjusting their assumptions for other precious metals. Silver's firm stance above $100 per ounce has pushed the gold/silver ratio to multi-year lows, breaking below 50. Back in December, BMO had anticipated that gold would outperform silver, given gold's role as a safe-haven monetary asset; however, the analysts now see a scenario where silver could continue to outpace gold. "This would capture a situation where the new global risk environment further ignites the safe-haven status of non-gold precious metals, amplified by retail participation, even though these metals are traditionally dominated more by their industrial characteristics," the analysts explained. "As an anchor for the bullish scenario, we can assume the gold/silver ratio remains in a range of approximately 40-50 for a prolonged period (the lower end of the 30-year range), implying silver could potentially reach around $160 per ounce by Q4 2026, and approximately $220 per ounce by Q4 2027."
