Unlike traditional approaches, the model eschews real interest rates and the US dollar exchange rate in favor of analyzing central bank reserve policies and budget deficits.

The forecast assumes approximately 5% growth relative to current spot prices. For equity investors, the most direct way to participate in gold's sustained rally remains through large gold miners and royalty companies—in particular, Newmont and Agnico Eagle, whose revenues and free cash flow mechanically increase as the realized gold price exceeds their total sustaining costs.

The intellectual foundation of the new model begins with a diagnosis: the old one has stopped working. "In 2024-2025, gold has transcended its historical dependence on real rates and the US dollar," Jefferies notes.

"As a result, regression models relying solely on these traditional price factors typically value gold significantly below current spot levels and fail to provide meaningful insights into the current cycle."

Rather than patching together an outdated concept, Jefferies built the model from scratch, narrowing the regression window to 30 years—from 1995 to 2025—and focusing the model on three variables: reserve diversification intensity, a binary indicator for whether gold has exceeded US Treasury bonds in central bank reserves, and the US budget deficit as a share of GDP.

The reserve diversification variable is the most original element of the model. Jefferies defines it as the annual volume of net gold purchases by central banks in tonnes divided by the dollar's share of global foreign exchange reserves—a coefficient that increases both as central bank gold purchases increase and as the dollar's share of reserves decreases. Wall Street analysts argue that this single indicator reflects a structural shift that traditional models completely miss.

"Our analysis shows that global reserve diversification into gold—primarily by central banks (which has accelerated in recent years)—along with better-known factors such as the fiscal position of developed-country governments, is a statistically significant factor that, taken together, explains a significant share of annual gold volatility since 1995," the analysts wrote.

Jefferies also intentionally excluded short-term U.S. interest rates, money supply growth, and the U.S. dollar index from the regression.

The company acknowledges that these variables influence gold, but argues that they are "indirectly captured through government spending models and central bank capital allocation decisions." Short-term rates, the company adds, remain a pressing risk that should support elevated gold volatility, even if they no longer anchor the structural outlook. The model supports Jefferies' existing, above-consensus forecast of $4,500 per ounce in the second half of 2026 and $5,000 per ounce in the first half of 2027. The company characterizes these forecasts as supported, rather than revised, by new quantitative work.

"The model reinforces our belief that gold's structural drivers remain intact and that medium-term spot price risks are likely tilted to the upside," Jefferies stated.

According to Jefferies, three extreme scenarios could independently push gold above $5,000 per ounce: a return to COVID-19-era fiscal deficits of around 14% of GDP, a decline in the dollar's share of global foreign exchange reserves below 40%, or a doubling of the current pace of central bank gold purchases.

The scenario analysis clearly demonstrates the model's sensitivity to reserve dynamics—this same sensitivity also shapes the primary downside risk. Jefferies states directly: "Our model, unsurprisingly, shows that a shift to net selling by central banks would have a material negative impact on gold." A reversal in central bank gold accumulation is the most obvious threat to the bullish scenario.

Jefferies positions the model as a directional tool rather than a comprehensive one, describing it as a means to test existing forecasts rather than a substitute for broader analysis.

The company notes that from the beginning of 2024 to the period covered by the report, gold has more than doubled in price—a move that it says is "well-aligned" with the acceleration of global reserve diversification into this metal.