Jefferies Unveils New Gold Model Targeting $5,000, Citing Central Bank Buying and Deficits

Jefferies has developed a new quantitative framework for gold pricing that abandons traditional drivers like real interest rates, instead focusing on central bank reserve behavior and U.S. fiscal deficits. The investment bank's model supports a price path toward $5,000 per ounce and sets a year-end target of $4,650.

A Shift from Traditional Drivers

According to a research note from the firm, historical models linking gold to real interest rates and the U.S. dollar have "broken down" in 2024-2025. Jefferies stated that these older models consistently produce forecasts well below current spot prices, limiting their usefulness.

In response, the bank built a new framework using a 30-year regression (1995-2025) focused on three core variables:

• The strength of central bank reserve diversification into gold.
• A binary indicator for whether gold has surpassed U.S. Treasuries in central bank reserves.
• The U.S. fiscal deficit as a percentage of GDP.

Jefferies' most innovative input is a metric for reserve diversification strength, defined as central banks' annual net gold purchases divided by the dollar's share of global foreign exchange reserves. The model intentionally excludes short-term interest rates and the dollar index, arguing their effects are indirectly captured through government spending and central bank allocation decisions.

Path to $5,000 and Key Scenarios

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The new model reinforces Jefferies' existing price forecasts, which include a target of $4,500 per ounce in the second half of 2026 and $5,000 in the first half of 2027. "The model further strengthens our conviction that gold's structural drivers remain intact," the analysts wrote.

Jefferies outlined three distinct scenarios that it believes could individually push gold prices above the $5,000 per ounce threshold:

• A return of the U.S. fiscal deficit to pandemic-era levels of approximately 14% of GDP.
• A decline in the U.S. dollar's share of global foreign exchange reserves to below 40%.
• A doubling of the current pace of gold purchases by central banks.

Investor Takeaways and Downside Risks

For equity investors, sustained strength in gold would directly benefit large-cap gold miners and royalty companies, such as Newmont and Agnico Eagle. Their revenues and free cash flow expand as gold prices rise above their all-in sustaining costs.

However, the model's high sensitivity to central bank activity also represents the primary downside risk. Jefferies noted that a shift by central banks to become net sellers of gold would have a "significant negative impact" on the price, identifying this as the biggest threat to the bullish outlook. The firm positions the model as a directional tool for testing forecasts rather than a comprehensive analytical framework.