Jefferies Outlines Three Scenarios That Could Drive Gold Above $5,000

Jefferies has outlined three potential scenarios that could drive the price of gold above $5,000 per ounce, according to a new quantitative framework from the firm. The model shifts focus from traditional drivers like real interest rates to central bank reserve diversification and U.S. fiscal policy.

A New Framework for a New Cycle

Analysts at Jefferies argue that gold's historical relationship with real rates and the U.S. dollar "broke" in 2024-25, prompting them to build a new pricing model. The firm said regression models relying on these traditional drivers now imply a gold price well below current spot levels.

The new framework, analyzing data from 1995 to 2025, centers on three key variables:

• The intensity of global reserve diversification into gold, primarily by central banks.
• A binary flag indicating whether gold has overtaken U.S. Treasuries in central bank reserve holdings.
• The U.S. fiscal deficit as a percentage of GDP.

Jefferies said this new approach reinforces its existing price targets, including $4,500/oz for the second half of 2026 and $5,000/oz for the first half of 2027. The model also generates a year-end target of $4,650/oz.

The Path to $5,000

According to the research note, Jefferies identified three extreme but distinct scenarios that could each independently push gold through the $5,000/oz threshold.

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These potential catalysts are:

• A return to Covid-era U.S. fiscal deficits, reaching approximately 14% of GDP.
• The U.S. dollar's share of global foreign exchange reserves falling below 40%.
• A doubling of the current pace of net gold purchases by global central banks.

The analysis highlights the model's high sensitivity to shifts in global reserve management, a factor Jefferies believes has been a primary driver of gold's recent performance.

Market Implications and Key Risks

For equity investors, a sustained rally in gold would directly benefit major mining companies. Jefferies noted that firms like Newmont and Agnico Eagle would see revenue and free cash flow expand as the gold price rises above their all-in sustaining costs.

However, the model's reliance on central bank behavior also presents the primary downside risk. Jefferies was explicit that a shift to net selling by central banks "would have a significant negative impact on gold," representing the clearest threat to the bullish outlook. The firm noted that while near-term interest rates were excluded from the model, they remain a live risk that could keep volatility elevated.