If you've been following my analysis, this probably won't surprise you, but the best investment choice for 2026 is gold. While equities experienced significant volatility, and many major currency pairs saw considerable fluctuations during the second half of 2025, with the US dollar holding its ground and even trending upward for much of the time, even as the Federal Reserve cut interest rates, gold has performed remarkably well over the past two years. With the Fed expected to cut interest rates next year, perhaps three or four times by 25 basis points, long-term investment in gold remains an attractive option.

The crux of this whole debate is inflation. If inflation exceeds expectations, the Fed may have no choice but to raise interest rates. However, given the political pressure that would accompany such a move, coupled with the fact that President Trump is expected to nominate a new Federal Open Market Committee (FOMC) chair who would likely be more responsive to his demands for lower rates, the Fed is unlikely to ease its accommodative policy except when absolutely necessary.

I believe this argument supports the "rapid rise" hypothesis in the stock market, as lower interest rates coupled with fiscal expansion could boost corporate profits and, consequently, stock prices. This could make non-AI stocks an attractive investment option, given the significant market divergence over the past few years, where AI stocks have benefited considerably, while other stocks have not.

The challenge lies in the sustainability of the stock market rally since its April 2025 lows. It is reasonable to assume that substantial long positions already exist, which could lead to negative volatility as investors take profits if the rally continues. Furthermore, if signs of rising inflation emerge, potentially prompting the Federal Reserve to adopt a less accommodative monetary policy, a pullback could be warranted. It's also worth noting that since February 2024, equity markets have experienced several periods of weakness, most notably in early 2025 when the threat of tariffs, coupled with the Federal Reserve's reluctance to cut interest rates, created a cautious environment unseen since the financial crisis—an environment where fiscal and monetary policies could stifle corporate profits and, consequently, stock gains.

However, it was the reconciliation that truly defined 2025. Trump's reversal on tariffs gave stocks an initial boost in April and May, and the expectation of eventual interest rate cuts further fueled the rally in the latter part of the year.

Despite all this, gold maintained a consistent upward trend, with only three pullbacks taking the form of bullish flag patterns. Continuation patterns often emerge after a prolonged rally, and while strong positioning in one direction can lead to sharp pullbacks, as seen in equities in March and early April of last year when buyers entered to support higher lows in response to those lower prices, there remains a strong possibility that the original trend will continue. This is what happened in the last two months of 2024, then for four months in 2025 from April to August, and then again later in the year until the breakthrough in late November.