Gold Prices Could Decline Further as Speculative Rally Fades, Says Capital Economics
Gold prices may continue to fall after their recent sharp correction, according to analysts at Capital Economics, who argue that the metal’s surge was driven more by “fear of missing out” (FOMO) than by strong market fundamentals.
John Higgins, Chief Markets Economist at the firm, said gold could drop to around $3,500 per ounce by the end of 2026, down from just below $4,000 currently.
“We doubt the recent pullback in gold prices will be reversed,” Higgins noted, adding that the metal has already fallen about 8% from its peak earlier this month.
He emphasized that the new forecast doesn’t imply a collapse, explaining that even at $3,500, gold would still trade roughly 28% above its 1980 inflation-adjusted peak.
However, Higgins warned that gold’s recent valuation had become “very difficult to justify in real terms,” with the price sitting around 60% above its prior record from 1980.
FOMO, Central Bank Buying, and China’s Role
According to Capital Economics, part of gold’s rally came from central bank diversification away from the U.S. dollar, strong Chinese demand, and ETF inflows.
While these factors may continue to offer some support, Higgins said they are unlikely to sustain prices at recent highs.
Currently, gold makes up over 20% of global reserves, and the firm does not expect those levels to revisit the record highs seen four decades ago.
A potential recovery in China’s stock market could also reduce local demand for the metal, while fund managers may limit their gold exposure if returns weaken.
Speculation, Not Dollar Fears, Drove the Rally
Higgins dismissed the idea that gold’s surge was caused by fears of dollar debasement or concerns over U.S. debt quality.
“The debasement theory looks like a misdiagnosis,” he said, pointing out that the U.S. dollar remained stable and Treasuries rallied even as gold prices spiked.
Instead, he attributed the run-up to speculative enthusiasm, suggesting that the market may now be entering a short-term “mini-bust” phase as momentum fades.
