Has Risk Been Solved?

Key Takeaways

• The S&P 500 forward P/E of 21.2 sits above both its 5-year (19.9) and 10-year (18.9) averages, while the Shiller CAPE ratio near 41-42 is second only to the dot-com peak.
• Goldman Sachs lifted its year-end S&P 500 target to 8,000 on 26 May, with AI infrastructure expected to drive roughly half of earnings growth in 2026.
• Central banks bought a net 244 tonnes of gold in Q1 2026, a 3% year-on-year increase, continuing a buying pattern that has now run for more than three years.
• Gold’s longer-term case rests on debt, deficits, and eroding confidence in paper assets, not on any single data point.

US equities are now sitting on valuations that leave very little room for error. The S&P 500 forward price-to-earnings ratio of 21.2 sits above both its 5-year average of 19.9 and its 10-year average of 18.9, while the Shiller CAPE ratio is sitting near 41-42, levels only really seen around the dot-com peak. That does not mean markets must fall tomorrow. Expensive markets can always become more expensive. But it does mean investors are being asked to pay a very full price for future growth at a time when the macro backdrop is anything but clean.

The current justification is familiar. AI spending is real. Earnings have been strong. The biggest companies keep delivering. Goldman Sachs lifted its year-end S&P 500 target to 8,000 on 26 May, with AI infrastructure beneficiaries expected to drive roughly half of earnings growth in 2026. That is the bull case, and it is not nonsense. The problem is that it has also become the market’s main assumption.

This is where gold remains interesting. It has not needed a perfect short-term setup to keep its longer-term case intact. The deeper issue is not one CPI print or one Fed meeting. It is debt, deficits, bond market pressure and the slow loss of confidence in paper promises. Global markets are being tempted by momentum while the underlying system keeps getting more fragile.

Central banks appear to understand this better than equity investors. According to the World Gold Council’s Q1 2026 Gold Demand Trends report, central banks bought a net 244 tonnes in Q1, a 3% increase year-on-year and above the five-year average, even after a strong price run. That is not the behaviour of institutions treating gold as a short-term trade. It looks more like preparation. When markets are priced for perfection, even a small disappointment can matter. Gold does not need to perform extremely well right away in that environment. It just needs to sit there, outside the earnings cycle, outside the debt spiral, and outside the assumption that financial assets can be repriced higher forever.

This article is general information only and does not constitute financial advice. Past performance is not indicative of future results. Always conduct your own research or consult a licensed financial adviser before making investment decisions.