Could gold prices crash in 2026? Here are 5 reasons why gold might crash spectacularly and 5 reasons why it might continue to rally

The possibility that gold prices crash in 2026 (or even in 2025) is a prospect that no investor should rule out. We get it, we may appear ‘doomsayers’ and gold may continue to rally into 2026. You could just say ‘winners are grinners’, in reference to those who have been profiting from the rally.

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But still, hear us out. In this article, we’ll look at 5 reasons why gold could crash, 5 reasons why it won’t and what we can learn from history. In other words, what caused gold to crash the last time it had a year anything remotely similar to the magnitude it has in 2025.

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5 reasons we might see gold prices crash in 2026

1. Inflation is falling

If inflation continues to decline or stays low, the appeal of gold as an inflation hedge diminishes. Investors may move their capital elsewhere to assets with higher growth potential (over the longer-term). Think bonds and stocks.

2. ‘Real’ interest rates remain high

Hang on? Haven’t central banks been cutting rates? Yes, but we’re talking about real (inflation-adjusted) interest rates. These are high and reduce the opportunity cost of holding gold, which yields no income.

If central banks, particularly the Federal Reserve, keep rates high, don’t cut them enough to offset inflation or even raise them, it can pressure gold prices because the appeal of other investments is higher (i.e. because it is greater than inflation). Any positive real interest rate is a sign a ROI is greater than inflation, and the real interest rate in the US is 1.56%.

3. The US dollar is strong

Gold is priced in dollars. A strengthening USD (generally and also vs the Australian dollar) makes gold more expensive for non-dollar investors, potentially lowering demand globally and in Australia. After all, US$4,200 is over A$6,000 at current exchange rates. Then again, investors queuing up in spades for gold may think gold will just pay for itself over time. After all, our dollar has been below 50 US cents.

4. Risk-on market sentiment is growing

Generally, when markets shift to a more optimistic, risk-on mood — say, due to strong economic growth, easing geopolitical tensions, or rising corporate earnings — investors may leave safe havens like gold in favour of equities. Now you might think: Aren’t markets risk-on right now? That’s for another article but let’s just say for the present purposes that ‘it’s complicated’.

5. Central banks could sell

Central bank gold buying levels have hit record highs in 2025 and this has been a catalyst for the rally. But if major central banks begin offloading gold reserves to shore up liquidity or rebalance portfolios, it could create downward pressure. Even if it was ‘modest’ amounts being sold, investors might get worried at the ‘signal’ the banks would be sending, marking a major pivot from the past few years.

5 reasons we won’t see gold prices crash in 2026

1. Geopolitical tensions may continue

Any escalation in global tensions (e.g., the war in the Middle East, conflict over Taiwan, terrorism, etc.) could trigger a flight to safety, supporting or increasing gold prices. We at Stocks Down Under are old enough to remember when individual events would lead to a major one-day rally in gold prices because investors would ‘flee to safety’. Perhaps investors who stayed out of gold to this point may finally buy in.

2. Economic weakness

Central banks are now pivoting to rate cuts and quantitative easing. If history is anything to go by, this often weakens the dollar and lowers real rates — bullish for gold. But beyond that, it also implies that central banks think weakness is possible – they are cutting interest rates because they recognise that if rates remain too high for too long, they’ll impact growth.

3. Inflation may remain higher than pre-COVID levels

Inflation has come off all time peaks, but in a post-COVID norm: is it realistic to continue to expect 2-3% to be the norm? If inflation proves sticky — especially with weak growth (or even stagflation) — investors may turn to gold as a store of value.

4. Central banks may just keep buying their reserves instead of selling

As we noted above, one of the key reasons for the rally in gold prices is central banks buying gold reserves – the US, other major central banks and emerging market central banks (e.g., China, India and Russia). If this trend continues, it puts a floor under prices.

5. Rising government debt levels may push investors towards gold rather than bonds

Rising debt levels and fiscal instability, particularly in the U.S., might lead to concerns about the long-term value of paper currencies or government bonds, pushing investors toward hard assets like gold.

Our conclusion: Remember the 1980s

It has arguably been the best year since 1979, when gold more than doubled in a year. 2025 has seen gold rally 66%. Certainly, it is the best year in modern history with the number of record highs and how much this year’s rally has dwarfed the typical average annual return, which tends to be in the single digits.

But considering gold would crash after the 1979 rally, we think investors need to remember that time. It is true that the rally in 1979 occured under very different economic and monetary conditions. Inflation was extremely high in the US (14% to be exact), geopolitics was volatile given the Soviet invasion of Afghanistan and the forthcoming Iranian revolution, weak confidence in the US dollar, panic buying and high speculation.

All these events came and passed, and after peaking at US$850/oz in early 1980, gold prices crashed to around $300/oz over the next 2 years. Gold would stay under $500/oz for nearly 2 decades and not return to its 1980 inflation-adjusted high until the GFC years.

Why? Because rates were raised aggressively (i.e. over 20%) to crush inflation and it worked, thus weakening the role of gold as an inflation hedge. Again, geopolitical risk subsided and the Reagan era began. Gold offers no income or yield whereas so many other asset classes did (and still do).

What’s the lesson to draw from this?

If you’re anticipating a fall in gold prices, then for geopolitical tensions to cool down and for deliberate policy interventions. Now, of course, we are in a different era and predicting the future direction of gold prices is difficult. But as it is said: Those who do not learn from history are doomed to repeat it!