After the sharp drop, gold is no longer a "cost-effective global asset" in the short term.
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After nearly two months of sharp gains, gold has recently shifted into a steep decline, with volatility surging. Amid the chaos, where should investors go from here?
The latest report released by Shenwan Hongyuan Research on October 24 points out that in the short term, gold is no longer a wise choice. As “going long on gold” has become the most crowded trade globally according to a Bank of America survey, highly leveraged ETF positions have begun to implode, causing prices to quickly fall back from historical highs. The current high volatility has severely eroded its risk-reward ratio.
Historical experience also shows that every round of major gold rallies has started with volatility returning to the low levels seen before the move. Shenwan Hongyuan suggests that allocation funds should wait for the $3,800–$3,900/oz range to buy on dips, while trading funds should wait until volatility drops to a low level before entering the market.
In the medium to long term, quantitative models show that the gold price center in 2026 will be $4,814/oz, so gold still has allocation value.
The Fall of Volatility is the Precondition for a New Trend; $3,800–$3,900 is the Bottom Area
The report provides differentiated advice for different types of investors. For trading funds seeking short-term gains, the best strategy is to stay on the sidelines and wait for a significant decline in volatility before entering, as trading in a high volatility environment yields a low profit-to-loss ratio. For long-term allocation funds, now is a time to wait for opportunities to buy on dips. The $3,800–$3,900/oz range is the fundamental bottom area for the second half of 2025 and can be taken as a key reference point for buying.
Specifically, Shenwan Hongyuan states:
Reviewing several breakout trends in gold—in May 2019, July 2020, March 2024, and February 2025—researchers found an important pattern: Volatility returning to its pre-move low is a precondition for a new round of upward or downward trends. This means that in the current high volatility environment, it is difficult for new upward or downward trends to form. Investors need to patiently wait for volatility to fall from high levels to see a better entry point.
As for allocation funds, opportunities to buy on dips should be awaited. Shenwan Hongyuan’s strategy gold quantitative model fits the macro fundamentals to the gold price center, showing under neutral assumptions that the gold price center in the second half of 2025 will be $3,886/oz according to four major macro indicators. Therefore, the $3,800–$3,900/oz range can serve as a better reference for the bottom area within the year. This price range represents a fundamentally supported gold price bottom, providing a clear entry reference point for allocation funds.
Long-term Fundamentals Remain Bullish: Price Center in 2026 Seen at $4,814/oz
Despite facing short-term adjustments, gold is still expected to reach new highs in the medium and long term. Shenwan Hongyuan’s quantitative model shows the price center for 2026 at $4,814/oz, mainly supported by the following factors:
Fiscal Policy Dimension: With geopolitical volatility, global fiscal deficits are expected to continue rising. The eurozone’s fiscal deficit ratio is set to keep climbing; in particular, Germany’s and France’s deficit ratios for 2026 are forecast to rise the most, by 0.52% and 0.48%, respectively. Global central banks and allocation funds are marginally reducing risk exposure to ultra-long-term US and European government bonds, and gold will benefit from this shift.
Monetary Policy Dimension: The Federal Reserve is expected to maintain loose monetary policy. Trump’s interference with Fed independence will lead to lower overall market risk appetite, while his tendency for rate cuts will also be favorable for gold to continue rising in the medium term. In 2025, gold prices and the real yield on 10-year US Treasury bonds will maintain a strong negative correlation.
Central Bank Gold Buying Trend: Central bank gold purchases globally remain stable, and reserves continue to rise. Against the backdrop of growing debt risks in the US and Europe, it is crucial for sovereign funds and central banks to control their risky exposure to US and European long-term government bonds. The trend of central bank gold buying, led by China, will likely continue and support the long-term strategic allocation value of gold.
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