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Investing.com -- Gold prices are likely to fall further after their recent sharp correction, according to Capital Economics, which argues that the metal’s rally was fueled more by “fear of missing out” (FOMO) than by fundamentals.
Chief Markets Economist John Higgins said the firm now sees gold dropping to $3,500 per ounce by the end of 2026, from just below $4,000 currently.
“We doubt the recent pull-back in the price of gold will be unwound,” he wrote, adding that the price has already fallen around 8% since peaking earlier this month.
Higgins said the Capital Economics’ new forecast “isn’t consistent with a collapse in the price of gold,” noting that even at $3,500, the real price would still be about 28% higher than its 1980 peak.
Still, he cautioned that the metal’s valuation had reached levels that were “very difficult to justify in real terms – to circa 60% above its prior peak in 1980.”
Some of the forces behind gold’s rally—central bank diversification away from the dollar, demand from China amid a weak property sector, and ETF inflows—should continue to lend some support. But Higgins said these are unlikely to sustain prices at recent highs.
Gold already accounts for more than 20% of total global reserves, and the firm does not expect those shares to return to the record levels seen in 1980.
Meanwhile, a rebound in China’s stock market may reduce local appetite for the metal, while fund managers could slow their gold allocations if performance weakens. Higgins also rejected the view that gold’s surge reflected fears of dollar debasement or concerns about U.S. debt quality.
“The ‘debasement’ theory looks like a misdiagnosis,” he wrote, pointing out that the dollar was stable and Treasuries rallied while gold prices soared.
Instead, he said, the rally appears to have been driven by speculative enthusiasm that “may be turning into a mini-bust.”