Should Investors Buy Gold or Hold Dollars in 2026?

TradingKey - In 2026, global assets exhibited a localized seesaw phenomenon against the backdrop of geopolitical conflicts. Gold, long renowned as a safe haven, underwent a sharp correction after hitting record highs in late January 2026, while oil prices continued to surge amid geopolitical tensions.

Amid the liquidity shocks triggered by the Middle East conflict, gold not only failed to exert its safe-haven attributes but also briefly became a risk-like asset. Its safe-haven appeal was suppressed by factors including liquidity demand, global inflation expectations, and a strengthening U.S. dollar; in March alone, gold prices fell by 11.6%, marking its worst monthly performance since June 2013.

Meanwhile, the U.S. Dollar Index rebounded after dropping to the 95 level in late January. Fueled by the outbreak of the U.S.-Iran conflict in February, the index strengthened in March, repeatedly breaking above the 100 mark before retreating on expectations of de-escalation, overall continuing the range-bound volatility of 2025.

Global investors are now focused on whether to buy gold or hold the U.S. dollar. Fundamentally, this choice between core assets is a market bet and assessment of whether the U.S. dollar credit system is beginning to fray.

Gold Prices: Short-Term Pressure Does Not Alter Long-Term Logic

During the Asian session on April 23, spot gold traded near $4,700 per ounce, down approximately 16% from its record high of $5,595 reached on January 29.

Gold prices have remained under persistent pressure recently. On one hand, this is attributed to profit-taking following a prolonged rally, with some investors choosing to close positions to extract liquidity. During the U.S.-Iran conflict, amid persistent risk-aversion, gold—which had previously benefited significantly—became the primary choice for liquidity withdrawal as investors reallocated capital to other assets that suffered losses due to the geopolitical conflict.

On the other hand, the spike in oil prices caused by geopolitical conflicts has led to a rapid rise in global inflation, significantly dampening rate-cut expectations across most central banks. Taking the Fed as a benchmark, before the conflict fully escalated, the market expected two rate cuts in 2026. However, after the conflict broke out and oil prices hit periodic highs, traders completely priced out expectations for a Fed rate cut this year. Markets even briefly placed bets on a rate hike, which strengthened the U.S. dollar and suppressed the appeal of dollar-denominated gold.

Data released by the U.S. Bureau of Labor Statistics showed that the annual CPI rate for March 2026 was 3.3%, in line with expectations, while PPI rose 4%, far below the expected 4.5%. Although the data indicates that most inflation metrics were not as severe as anticipated, the fact that underlying inflation rose in the short term has been fully priced into market expectations, meaning the Fed's rate-cutting cycle remains far off.

[The probability of a Fed rate cut this year is only about 20%, Source: CME Group]

CME data shows a 100% probability that the Fed will maintain interest rates in April. Rate-cut expectations have been compressed to nearly zero, putting continued pressure on gold, a non-yielding asset.

However, Wall Street institutions almost unanimously believe this is merely a "correction within a bull market."

In January 2026, Goldman Sachs raised its year-end gold price target from $4,900 to $5,400 per ounce, citing growth in private investor demand, sustained central bank gold purchases, and two projected Fed rate cuts within the year. Monthly central bank purchases are expected to remain at 60 tons.

Meanwhile, despite market bets on a slim chance of rate cuts this year, Goldman Sachs still predicted in March that the Fed would cut rates in September and December.

[The March decline was influenced by momentum factors, Source: Bloomberg, World Gold Council]

The World Gold Council believes that gold's weak performance in March was driven by deleveraging and liquidity dynamics rather than fundamental factors, with rising U.S. real yields and a stronger dollar being the primary reasons; it maintains that gold fundamentals remain firm.

Although Morgan Stanley previously lowered its price forecast for gold in the second half of the year, it still predicts that gold prices will rise to $5,200 in the second half of 2026. From the perspective of market confidence, gold's long-term investment logic is still recognized by the market.

US Dollar: Short-Term Resilience Hard to Sustain Amid Credit Erosion

As of April 23 Eastern Time, the U.S. Dollar Index (DXY) was at 98.6, having retreated about 2% from its peak at the end of March but remaining in a range-bound territory with a strong bias. Previously, the U.S. released March retail sales data, where better-than-expected growth showed the U.S. economy still possesses resilience; additionally, with safe-haven demand returning due to recurring Middle East tensions and the Fed maintaining high rates providing fundamental interest rate support, the dollar maintains a strong short-term pattern.

However, the long-term structural challenges facing the dollar are not to be overlooked. As the U.S. fiscal deficit expands and inflation expectations undergo a structural lift, the safe-haven role of U.S. Treasuries has been markedly weakened. Currently, geopolitical risks are transitioning from "tail risks" to "baseline scenarios." Should the geopolitical risk timeline continue to lengthen, the dollar's safe-haven attributes will be progressively undermined, meaning dollar demand may exhibit a trend of diminishing at the margin.

Meanwhile, as of the end of 2025, the total value of gold reserves held by non-U.S. central banks worldwide reached approximately $3.93 trillion to $4.2 trillion, surpassing the total amount of U.S. Treasuries held overseas during the same period. The value of gold in central bank reserves has historically overtaken that of U.S. Treasuries, and "de-dollarization" demand exhibits extreme price stickiness under sanctions-related anxiety.

In this context, the Federal Reserve's rate-cut path has hit a stalemate. The market estimates the probability of a cumulative 25-basis-point rate cut by June at only 1.7%, indicating that previously expected cuts are unlikely to occur. While high interest rates bolster the dollar's short-term exchange rate, they also mean that U.S. fiscal debt costs continue to escalate, further eroding the credit foundation of the greenback.

This landscape forms a paradox for the dollar's resilience; therefore, in the long term, the dollar will continue to encounter structural contradictions where its long-term value is steadily eroded.

There is a fundamental difference in the allocation logic for gold and the US dollar.

From a historical perspective, gold and the U.S. dollar undoubtedly share safe-haven attributes, yet fundamental differences persist at their core.

The U.S. dollar's core functions are liquidity and safety; its current short-term strength, underpinned by interest rates, offers certainty to cash holders. However, in a stagflationary environment triggered by energy supply shocks, traditional asset class hedging logic often falters, and the dollar's safe-haven status does not cover all risk scenarios.

While gold serves as a safe haven, it is fundamentally based on the core functions of wealth preservation and credit hedging. With the U.S. fiscal deficit approaching $40 trillion and the dollar's creditworthiness eroding, gold’s intrinsic quality—independent of sovereign credit—renders it an irreplaceable component of an investment portfolio.

Choosing core assets for 2026 cannot be reduced to a binary 'gold versus dollar' decision; it requires individual assessment through the lens of asset allocation. The certainty afforded by the U.S. dollar's short-term interest rate advantage remains appropriate for liquidity positioning.

Amid the structural shift toward de-dollarization, gold's long-term value as a credit hedge for major global economies is evolving from a tactical trade into a strategic necessity.

Given the convergence of normalized geopolitical risks and the erosion of U.S. sovereign credit, gold surpassing the $5,000 mark in 2026 is by no means out of reach.