How AI Could Paradoxically Strengthen the Bull Case for Gold
One of the most important things to monitor in equity markets is leadership and concentration. When a small handful of names drives the bulk of returns, the risk of downside grows substantially. The dominant theme in today's market is AI, and the degree of concentration it has produced is striking: roughly 1% of the S&P 500 index is responsible for about 50% of the year-to-date gains.
That kind of concentration is not healthy. It is, in fact, characteristic of the late stages — the end — of a bullish wave. When such concentrated positions experience downside, the consequences for overall index performance are severe, precisely because so few names carry so much weight. As that risk materializes, investors begin searching for alternatives outside of equities.
Why Bonds Aren't the Alternative
The natural question is whether the bond market serves as a viable alternative in the current environment. The answer is no. Inflation is creeping higher, and the newly installed Fed leadership has signaled a posture of "higher for longer." In that setting, bonds are not the go-to destination for capital fleeing equity risk. Instead, gold stands to capture significant attention and flows between now and year-end.
Gold Price Targets and the Path Forward
At the time of this analysis, gold was trading down about 3% on the day at 4247, more than 20% off the highs set back in January. Despite that pullback, the outlook through year-end is constructive.
Near-term weakness and consolidation: Gold may continue its consolidation, with weakness possible in the 3850 to 4000 range. A 50% Fibonacci correction of the entire 2025 move would place gold around 4050 to 4070. That level has already been touched once, and a retest is plausible.
Year-end upside: By year-end, gold taking out its old highs of 5500 is viewed as very probable. There is also a higher end to the target range — up to 6300 — meaning the full projected range runs from roughly 5500 to 6300.
What's Required to Reach the Higher End (5500 → 6300)
Two distinct forces are at work:
- Central bank support defines the floor. Central banks continue to buy aggressively. China, for example, has purchased gold for the 19th consecutive month, with its most recent monthly purchase totaling 320,000 ounces. These institutional buyers are the ones establishing the floor under gold prices.
- Investor interest drives the ceiling. Pressing past 5500 toward 6300 requires strong investor participation. Notably, the last round of investor interest was driven by greed, not fear — it was a momentum trade. If further pressure hits the financial markets, gold transforms into more of a fear trade, which is a different and potentially more powerful dynamic.
The "Higher for Longer" Domino Effect
The Fed's "higher for longer" stance is highly consequential and extends well beyond gold. It represents something like a death knell for private credit. Already, pressures are migrating from private credit into private equity. The open question is how far this migration spreads — specifically, whether these pressures eventually become a negative for public equities as well.
These market dynamics make gold's safe-haven appeal very attractive. They also suggest that 2026 interest in gold will be very distinct from what occurred in late 2025 and into January 2026, when buying was primarily a momentum trade populated by late participants and "hot money" that flooded into gold halfway through 2025. A crucial point on attribution: up to that mid-2025 inflection, roughly $2,000 of the gold price was largely attributable to central banks rather than to retail investors.
Silver: The Overlooked Outperformer
Gold dominates the conversation, but silver is frequently overlooked despite outperforming gold on a percentage basis in the prior year. The conditions that favor silver are specific: if the economy can maintain positive GDP growth and economic activity alongside inflationary pressures, silver tends to outperform gold.
The gold-silver ratio currently sits at 62 to 1, and a move into the 40s would make sense under these conditions. Gold typically acts as the leader and silver as the follower. So, with gold strength combined with stable GDP, the inflationary backdrop positions silver as the likely outperformer for the year.
The prior year demonstrated this vividly: gold posted roughly a 65% move while silver delivered over 150%. A replay of that pattern is plausible in 2026.
Mining Companies: What to Look For
The bullish thesis extends to mining companies, which present an attractive opportunity in part because they are minting money at current price levels. From a free cash flow standpoint, these companies have never made more money in their histories.
The governing principle is "as go the commodities, so go the shares." Both the metals and the miners experienced a correction, but an increase in the commodity price lights a fire under these companies in a positive way.
When evaluating mining plays, investors should focus on three characteristics:
1. Jurisdiction — specifically tier-one jurisdictions.
2. Management competency.
3. Capital discipline.
Combine competent management with great, long-lived assets in tier-one jurisdictions, and place all of that within the context of a bull market, and there is substantial money to be made.
Oil: Bearish Now, Constructive Long-Term
US crude was trading at 73.77 at the time of this discussion, continuing to fall. With the recent MOU (Memorandum of Understanding) regarding the U.S. and Iran, many conversations have centered on things "returning to normal." But is there really a "normal" for oil markets?
The answer: probably not ever again. Several factors complicate any return to normalcy:
- Choke point dynamics. There is a very clear choke point in everyone's mind. It is not yet determined whether tolls will apply going forward. There is a 60-day period during which no tolls will be charged, but beyond that window, the matter becomes a negotiation point. Choke-point premiums on Middle East oil are one consideration.
- The bigger consideration — U.S. shale rolling over. Over the last decade, the marginal increase in global oil production has come from U.S. shale. Critically, the best fields are now in the process of rolling over. Stretching the view out one, two, or three years, this creates pressure on supply — a dynamic that is very constructive for higher prices, regardless of what happens in the Middle East.
Trading Stance
The long-term picture for oil is therefore very constructive. However, in the present moment the outlook is very bearish. The stance would flip to bullish if prices fell into the low-to-mid $60s, which would represent an excellent entry point for any oil trade.
