The Stock Market or Gold: Which One Will Be Wrong in 2026?

Key Concepts

• Global Trade Policy Uncertainty: A measure of uncertainty surrounding international trade, impacting market sentiment.
• AI Supply Chain Vulnerability: The interconnected and international nature of the Artificial Intelligence supply chain creates risks due to geopolitical tensions.
• Gold as a Safe Haven: Gold’s role as a non-sovereign asset providing a potential intermediary for international transactions during economic or political instability.
• Central Bank Gold Reserves: The holdings of gold by central banks as a percentage of total foreign exchange reserves.
• Dollarization/De-dollarization: The extent to which countries rely on the US dollar for international trade and reserves, and the potential shift away from it.
• Yield Divergence: The difference in interest rates between the US and other major economies.

Market Performance in 2025 & Outlook for 2026

This analysis focuses on the performance of major asset classes in 2025 and provides a forward-looking perspective for 2026, emphasizing the interplay between economic factors, geopolitical risks, and technological advancements.

2025 Asset Class Review

The year 2025 saw a mixed performance across asset classes. Stock markets, particularly the S&P 500 and NASDAQ (up approximately 20%), continued their upward trajectory. Bond yields declined as the Federal Reserve cut rates. Crude oil prices decreased despite geopolitical tensions, indicating limited disruption to supply. Notably, gold experienced a substantial rally, increasing by roughly 66%, while the US dollar weakened slightly, with the Euro outperforming. Bitcoin, after initial gains, ended the year down approximately 6%.

Specific Performance Figures:

• S&P 500 & NASDAQ: +20%
• Gold: +66%
• Bitcoin: -6%
• 2-Year Treasury Yield: Significant decline due to Fed rate cuts.
• Crude Oil: Down (specific percentage not provided)

Sector Performance & Earnings Growth

Within the stock market, Information Technology significantly outperformed all other sectors, driven by strong earnings growth. Energy experienced a decline. Overall, earnings growth is accelerating into 2026, contributing to the positive stock market outlook. The market recovered impressively from a soft patch in the first quarter, regaining all lost ground and adding another 20% gain on top of that.

Key Observation: Tech sector earnings growth vastly outperformed other sectors.

Geopolitical Factors & Trade Uncertainty

Initial concerns surrounding potential trade policy changes under a new administration (Trump 2.0 tariffs) caused a surge in the World Trade Policy Uncertainty Index at the beginning of the year. However, these concerns eased as the situation didn’t escalate, leading to a decrease in uncertainty. While still elevated compared to pre-2016 levels, the index showed a significant reduction from its peak, falling from nearly 11% of news stories to around 3-4%. Geopolitical events in the US/Israel/Iran and Russia/Ukraine theaters did not significantly disrupt crude oil supplies or escalate into broader conflicts.

Data Point: World Trade Policy Uncertainty Index peaked at nearly 11% of news stories, then decreased to 3-4%.

The Gold Anomaly & Dollar Dynamics

The most striking development of 2025 was the 66% surge in gold prices. This rally wasn’t primarily driven by increased central bank purchases, as their gold buying slowed compared to 2023 and 2024. Furthermore, there was no evidence of a loss of confidence in the US dollar; dollar reserves remained relatively stable and even increased slightly. The share of the dollar in global reserves has been declining since 2016, but this is due to the increased adoption of the Euro and other currencies, not a rejection of the dollar itself.

Key Finding: Gold’s rally isn’t explained by typical drivers like central bank buying or dollar devaluation.

The decline in US yields relative to other major economies (a 10% decline for the US versus a 12.4% increase for the Euro area, UK, Australia, and Japan combined) contributed to dollar weakness, but doesn’t fully explain gold’s dramatic rise.

AI, Supply Chain Vulnerabilities & Uncertainty

The analysis highlights a critical link between the AI boom, global trade uncertainty, and gold’s performance. The AI supply chain is highly internationalized, with components sourced from various countries (China, Taiwan, Korea, Japan, Europe). This creates a significant vulnerability. The increased volatility in the World Trade Policy Uncertainty Index, particularly the wider swings in sentiment, reflects this concern.

Crucial Argument: The uncertainty surrounding the AI supply chain is a major driver of gold’s rally. Companies require predictable supply chains and cannot operate effectively under the threat of prolonged trade disruptions.

Quote: “If you’re concerned that there is going to be more uncertainty around this, even though the trend might well be moderating, you’re concerned that swings up and down are going to be something to be constantly aware of and you never quite know when something might come out of left field.” – Spac

If the US and China were to engage in economic warfare, third countries might seek a neutral asset like gold to facilitate transactions between the two spheres of influence. Gold, as a non-sovereign asset, is not subject to the control of any single nation.

Positioning for 2026

Based on this analysis, the speaker’s positioning for 2026 is as follows:

• Long Gold: Maintaining a long position in gold despite a recent pullback, anticipating renewed momentum.
• Short US Dollar: A slightly short position on the US dollar, expecting further downward pressure from interest rate dynamics. Specifically short Euro, Pound, and Canadian Dollar.
• Short Risk: Maintaining short positions in risk assets, including a short Bitcoin position with 18 days to expiration, and put verticals on the Russell, S&P, and NASDAQ extending into January and February.

Quote: “I am going into next year with my exposure for the most part unchanged.” – Spac

The speaker anticipates a growing focus on the compatibility of global uncertainty and AI optimism, and whether one will need to give way to the other.

Conclusion

The year 2025 was characterized by seemingly contradictory trends: rising stock markets, declining yields, and a surge in gold prices. The key to understanding these dynamics lies in the interplay between geopolitical risks, the vulnerabilities of the international AI supply chain, and the role of gold as a safe haven asset. The speaker believes that continued global uncertainty, particularly surrounding the AI sector, will remain a dominant theme in 2026, justifying a cautious and defensive investment strategy. The analysis emphasizes the importance of recognizing the interconnectedness of global markets and the potential for unexpected disruptions.