Jefferies has introduced a newly constructed quantitative approach to estimate the price of gold, placing central bank reserve dynamics and fiscal deficits at the center of its work rather than relying on traditional drivers like real interest rates and the U.S. dollar. The firm’s fresh framework produces a year-end target of $4,650 per ounce, a level that implies roughly 5% upside from prevailing spot prices.
The firm highlights that for investors seeking equity exposure to a sustained rally in bullion, the most direct beneficiaries are major producers and royalty companies whose earnings expand mechanically if the realized gold price rises above their all-in sustaining costs. Examples cited include Newmont and Agnico Eagle, firms whose revenue and free cash flow are sensitive to higher realized metal prices.
Jefferies’ starting diagnosis was that the conventional model had stopped fitting recent market behavior. The research note states that in 2024-25 gold diverged from its historical relationships with real rates and the dollar, a development that left regression models relying on those variables underestimating the metal’s price and offering limited insight for the current cycle.
Faced with a framework that no longer explained observed moves, the firm rebuilt its model from first principles rather than attempting incremental fixes. The regression window was narrowed to a 30-year span - 1995 through 2025 - and the model was recentered on three inputs: a measure Jefferies calls reserve diversification intensity, a binary indicator signifying whether gold has overtaken U.S. Treasuries within central bank reserve allocations, and the U.S. fiscal deficit as a share of GDP.
The reserve diversification intensity metric is the most novel element of the model. Jefferies defines this variable as annual net central bank gold additions, measured in tonnes, divided by the dollar’s share of global foreign exchange reserves. By construction, the ratio increases both when central banks accelerate gold purchases and when the dollar’s reserve share declines. The firm argues this single term captures a structural shift that legacy frameworks have failed to incorporate.
"Our analysis suggests global reserve diversification into gold, mostly by central banks (which has accelerated in recent years), alongside more well-understood factors such as the fiscal positions of developed market governments, are statistically significant factors which together have explained a meaningful portion of gold's annual variance since 1995," the analysts wrote.
In building the regressions, Jefferies intentionally excluded several common near-term variables: short-term U.S. interest rates, money supply growth and the U.S. dollar index. While the firm acknowledges these variables exert influence on the metal, it contends they are arguably captured indirectly through government spending patterns and central banks’ capital allocation choices. The research note nonetheless flags near-term interest rate developments as a live risk that will likely keep gold’s volatility elevated even if they no longer function as the primary structural anchor in the firm’s forecasts.
The results align with Jefferies’ pre-existing, above-consensus price path for gold. The model supports a $4,500 per ounce target for the second half of 2026 and $5,000 per ounce for the first half of 2027. The firm characterizes these figures as reinforced by the new quantitative work rather than as a revision of earlier guidance.
Jefferies also ran scenario analysis to illuminate the market’s sensitivity to reserve dynamics. The report identifies three extreme, independent scenarios that could each push the metal through $5,000 on their own: a return to Covid-era fiscal deficit levels of around 14% of GDP, a decline in the dollar’s share of global foreign exchange reserves to below 40%, or central banks roughly doubling their current pace of gold purchases.
The scenario work underlines that the model is particularly responsive to shifts in central bank reserve behavior, which also creates a clear downside vulnerability. In the firm’s words, a switch from net central bank buying to net selling would have a significant negative impact on the price of gold. That prospective reversal in accumulation represents the clearest threat to the bullish case embedded in the model.
Jefferies frames the framework as a directional and diagnostic tool rather than an exhaustive forecast engine. The firm positions it to challenge prevailing assumptions and to complement broader analysis, emphasizing that it helps explain recent moves even as it leaves room for near-term volatility tied to interest rates and other cyclical factors.
As further context provided by the research, Jefferies notes that gold more than doubled in price from the start of 2024 through the period covered by the study, a rise the firm says corresponds well with an acceleration in global reserve diversification into the metal.
Implications for markets and investors
- Equities in the gold mining and royalty sectors are the most direct way for investors to gain exposure to a sustained price rally, given the mechanical linkage between realized metal prices and producer revenue and cash flows.
- Central bank reserve policy is now modeled as a principal structural driver, elevating the importance of sovereign and institutional reserve allocation decisions for commodity markets.
- Government fiscal positions are included as a material explanatory variable, linking sovereign budget dynamics to precious metals pricing in the model.