The global head of equity and real asset strategy at Wells Fargo, Sameer Samana, believes that after a more than 20% pullback from its January all-time high, the risk-reward structure for gold has changed: downside is narrowing while long-term upside potential remains attractive.
In an interview with Kitco News, Samana stated that investors should now focus less on short-term volatility and instead evaluate the long-term risk-reward profile of gold. He believes that major risks, whether from sustained high oil prices or the Federal Reserve ultimately implementing further rate hikes, have largely already been priced into the gold market.
He said, "I think the risk-reward has reversed quite a bit since the peak." Regarding how the market has digested rate hike expectations, he added, "If the fed funds futures market has priced in two to three rate hikes, then I think the gold price has also priced in two to three rate hikes."
In his view, the real discussion for investors going forward is not whether there are rate hike concerns, but the probability of more aggressive tightening. He said, "What are the odds of more than two or three rate hikes? Inflation is not severe enough to warrant a significantly more forceful tightening."
In recent months, gold has remained under pressure, against the backdrop of renewed Middle East tensions pushing oil prices higher, which in turn strengthened market bets that the Fed might be forced to tighten policy. Rising real yields have also increased the opportunity cost of holding non-yielding assets like gold.
However, Samana believes market sentiment may have become overly pessimistic. He said, "The real question is, for this allocation in your portfolio that is difficult to replicate with other assets, is the risk-reward favorable? I think it is."
Short-Term Weakness Possible, Long-Term Cycle Intact
Samana did not deny that gold could still weaken further in the short term. He stated that, from a technical perspective, it's still difficult to confirm that a bottom is in for the gold price.
He said, "It's hard to say that gold has bottomed." Regarding near-term risks, he further noted, "In the short term, I think there is a risk of a decline to $3,500."
Besides downside risks, he also mentioned that overhead resistance zones still exist. In his assessment, the $4,500 to $4,900 range could face technical resistance, as investors who bought near previous highs might choose to cut losses if prices recover.
Despite this, Samana emphasized that investors should not overlook the longer-term macro cycle. He stated, "When the dust settles, you will be back in roughly the same situation." In his logic, rising oil prices and higher interest rates will slow the economy, which will subsequently push central banks and fiscal authorities to reintroduce supportive measures.
He further explained that this eventual economic slowdown is likely to prompt policymakers to cut rates again and potentially introduce additional monetary support. Based on this, he believes the long-term trend for gold remains intact.
He said, "Can you see a scenario where it goes to $3,500 first and then to $4,500? It's possible." But he simultaneously stressed, "But unless you think that long-term cycle is over, it's really just a matter of time before gold prices move higher."
Wells Fargo Maintains Long-Term Bullish View, Cites Portfolio Insurance Value
Samana also explained his view on gold from an asset allocation perspective. He pointed out that, historically, gold has typically been relatively resilient during economic downturns.
Reviewing recent recessions and periods of rapid monetary policy tightening, he stated that gold's drawdowns are usually milder compared to many other asset classes. According to him, gold experienced about a 15% drawdown during the 2020 recession and the 2018 Fed tightening cycle; during the 2008 financial crisis, the decline was close to 34%. More importantly, gold's long-term bear markets often evolve slowly over several years, rather than collapsing suddenly.
With gold having pulled back nearly 30% from its highs, Samana believes much of the potential loss is already reflected in the price. He said, "I think a lot of the pain is already priced in."
He also stated that gold remains worthy of allocation because it can provide diversification benefits beyond traditional assets, especially being more valuable when both stocks and bonds are under pressure. He said, "This asset doesn't work in every environment." But he added, "But when stocks don't work and bonds don't work, the probability of gold working is very high."
Samana's judgment aligns with the latest research conclusions from the Wells Fargo Investment Institute. The institute stated in its latest "Chart of the Week" report that the recent gold price correction was primarily driven by profit-taking and increased market expectations for Fed tightening; rising real yields temporarily weakened gold's relative appeal. However, the institute expects this relationship to stabilize if energy and supply chain pressures begin to ease.
The report also noted that structural factors supporting gold remain solid, including ongoing central bank gold purchases, reserve diversification demand, and persistent geopolitical uncertainty. Based on these factors, Wells Fargo reiterated its long-term forecast: by the end of 2026, the gold price is expected to rise to $5,300 to $5,500 per ounce; by the end of 2027, it is expected to further climb to $5,800 to $6,000 per ounce.
In Samana's view, these long-term targets are precisely why investors should not focus solely on the current pullback. He said, "If you can look out 18 months to the end of 2027, I still think the possibility of reclaiming the highs, or even making new highs, is very real."
Regarding the current risk-reward ratio for allocating to gold, he gave a very direct final assessment: "So you give me $500 of downside and about $1,500 of upside. As an investor building a portfolio, I think that's a very attractive risk-reward ratio."
For now, after two consecutive weeks of declines, spot gold is currently showing signs of support around the key psychological level of $4,000, as dip-buying emerges.
Analysts including Amy Gower at Morgan Stanley stated in a report that "gold is struggling to find direction," with central bank purchases supporting the price, while exchange-traded funds (ETFs) are selling their gold holdings due to concerns about Fed rate hikes. However, they believe ETFs have room to re-enter the market, as the Fed is expected to ultimately hold steady this year and resume rate cuts next year.
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