Following a sharp initial rally, gold has experienced a significant correction. However, a market strategist from WisdomTree argues that this does not signal the end of the precious metal's long-term bull market. Instead, the price is now returning closer to reasonable value from its previously overheated state, creating room for a subsequent rebound.
WisdomTree's Head of Commodities and Macroeconomic Research, Nitesh Shah, stated in an interview that gold prices still have an opportunity to resume their upward trajectory this year. He believes that following the hawkish guidance from the Federal Reserve's June monetary policy meeting, investor pricing of the future rate hike path has become overly aggressive.
Shah noted, "I think the market has gotten a little bit ahead of itself," referring to market expectations for tighter monetary policy.
He pointed out that investors are overly focused on Fed officials' interest rate projections while neglecting the broader economic constraints facing the central bank.
Shah commented, "I'm not entirely convinced we'll see that many hikes so quickly. Yes, the labor market is relatively strong, and inflation is elevated, but the overall narrative hasn't changed that much."
He further suggested that if the Federal Reserve significantly reduces its balance sheet, that in itself would constitute monetary tightening, thereby reducing the necessity for multiple rate hikes.
Shah said, "I think that is monetary tightening in itself, and it would also reduce the scope for further rate hikes."
Simultaneously, he questioned whether policymakers could genuinely maintain a hawkish stance for an extended period in the context of persistently rising government debt burdens.
He stated, "Turning hawkish simply means the interest payment bill rises significantly. At some point, if you raise rates, you might be forced to cut them almost immediately because you've created something akin to a recession, or triggered a disruptive loosening in the financial system."
Shah does not view the recent decline in gold prices as the beginning of a long-term bear market. He describes this pullback as a healthy normalization, as speculative overheating earlier this year had driven prices far above fundamental value.
He said, "I think prices just got too high. The subsequent price decline doesn't surprise me; it's mainly correcting what looked like an overly frothy part of the market."
Shah mentioned that his gold valuation model incorporates factors such as bond yields, the U.S. dollar, inflation, and speculative positioning. The model showed an unusually large premium relative to fair value in January, a gap that has now largely closed.
He stated, "If you go back to my model, the gap between the actual price and the model in January was very large. Now they are basically aligned. I don't see a huge deviation between the current gold price and fair value."
This implies that if the macro environment evolves as expected, gold is positioned to resume its long-term uptrend.
Shah noted, "If inflation remains high, if bond yields retreat a little further, if the U.S. dollar weakens, then from here, there is upside potential for gold."
In Shah's view, the most critical variable for gold remains the long-term direction of the U.S. dollar.
Despite the dollar's strength in recent months, primarily driven by market bets on more hawkish Fed policy, Shah believes this dollar rally may ultimately prove to be only a temporary phase.
He said, "I think the structural dollar depreciation story is still there."
He pointed out that persistent U.S. fiscal deficits and current account imbalances are fundamental factors that could weigh on the dollar in the future.
Shah stated, "At some point, the budget deficit and current account deficit should start to put more downward pressure on the dollar. The dollar is strong now, I think, just because the market is expecting a higher federal funds rate, an expectation I also believe may be somewhat misplaced."
Additionally, he anticipates that easing geopolitical tensions and improving global energy supply will help cool inflation in the medium term, thereby reducing pressure on the Fed to continue aggressive tightening.
Against this backdrop, WisdomTree maintains a long-term bullish view on gold, forecasting that prices could rise by 25% from current levels by the first quarter of 2027.
Shah stated, "I still think a price above $5,000 is easily achievable."
He acknowledged that the exceptionally strong buying momentum seen earlier this year may not return immediately, but the structural sources of demand for gold remain solid.
One key support comes from central bank buying. Shah mentioned that the latest reserve manager survey from the World Gold Council shows a record-high proportion of respondents planning to increase their gold holdings over the next year.
He said, "Central banks are very likely to continue buying, and now with prices lower, they might buy more."
Despite gold's recent weakness, Shah believes long-term investors should distinguish between short-term trading positions and gold's strategic role in a diversified portfolio.
He said, "There are many types of investors. Some view gold as a core strategic holding and may then make larger tactical additions on top of that."
He also revealed that WisdomTree's gold products have recently seen some inflows.
Shah noted, "Actually, we've seen a bit more inflow into the gold products. Perhaps that's related to gold becoming a little bit cheaper."
Overall, WisdomTree's assessment is that the recent short-term correction in gold is more about valuation adjustment and the digestion of speculative froth, rather than the end of the long-term bull market. As long as the logic for long-term dollar weakness remains intact, inflation stays sticky, bond yields retreat, and central banks continue to increase gold holdings, prices could still move higher in the future.
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