Analysts Warn of a Potential ‘Mini-Bust’ in Gold Prices

coin On Monday, gold prices took a hit as they continued to decline, while stock markets surged to unprecedented highs, raising questions about the sustainability of the recent gold rally.

Just a few weeks ago, gold appeared to be on an unstoppable ascent, breaking through record highs and enjoying a remarkable increase of over 60% for the year. However, following a peak earlier this month, the precious metal has seen a decline of 9%, with prices now stabilizing around $4,000 per ounce.

Market analysts on Wall Street have attempted to rationalize the heightened demand for gold, suggesting a shift away from dollar-based assets or referencing the so-called debasement trade. This theory posits that governments may allow inflation to rise significantly in order to manage their debt loads, which could undermine the value of bonds.

However, Hamad Hussain, a climate and commodities economist at Capital Economics, offered a more straightforward analysis in a note released on Monday.

“The most recent phase of the gold rally resembles a market bubble that is nearing its end,” Hussain stated. “In contrast to some analysts, we are adjusting our forecasts downward and now anticipate prices to drop to $3,500 per ounce by the end of 2026.”

Hussain pointed out that the recent surge in gold prices, especially since August, has been significantly driven by a “fear of missing out” (FOMO). This psychological factor has fueled buying behavior among investors.

Analysts Warn of a Potential ‘Mini-Bust’ in Gold Prices Despite Hussain’s revised outlook, he clarified that this is not indicative of an impending collapse. He believes that long-term demand trends, such as central banks accumulating gold reserves and Chinese investors seeking gold as a safe haven following the real estate market's downturn, will help maintain relatively high prices compared to historical norms.

In a separate analysis, John Higgins, chief markets economist at Capital Economics, expressed skepticism about the sustainability of these demand drivers. He noted that he does not foresee gold’s share in global reserves returning to previous peaks, especially as China’s booming stock market may diminish the appeal of gold.

Business Furthermore, Higgins also challenged the notion of the debasement trade. He highlighted that during the period when gold was climbing sharply from early August to mid-October, the dollar remained stable, and 10-year Treasury bonds actually experienced gains.

“The recent gold boom seems to have been driven more by the fear of missing out on a market upswing that may now be transitioning into a mini-bust,” he remarked.

The sharp downturn in gold prices and the revised outlook starkly contrast with some optimistic predictions that suggested the upward momentum would continue unabated.

Earlier this month, market expert Ed Yardeni, president of Yardeni Research, revisited his bullish predictions regarding gold, which had consistently surpassed his forecasts ahead of schedule.

During his analysis, he cited several factors contributing to gold's appeal, including its historical role as a hedge against inflation, central banks’ efforts to de-dollarize after the freezing of Russian assets, the collapse of China's housing market, and geopolitical tensions stemming from Trump's trade policies.

“We are now targeting $5,000 by 2026,” Yardeni stated. “If the trajectory continues as it is, it could even reach $10,000 before the decade concludes.”

This story was originally featured on Fortune.com