Gold prices to break $5,000 next year? Analysis: The premise is a resurgence of "US dollar depreciation trades"

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Although gold prices have recently pulled back, the core logic driving this year's precious metals rally—the "dollar devaluation trade"—has not disappeared, and there is hope it will break above $5000 next year. This expectation is based on investors' concerns over ongoing fiscal deficits, rising interest costs, and government debt monetization, meaning the so-called "dollar devaluation trade" could resurge in popularity.

Recently, gold prices have dropped significantly, currently down 8.5% from the October record high, sparking market debates on whether the rally is merely pausing or has already peaked. However, analysts point out that against the backdrop of rising global debt, geopolitical tensions, and weakening policy discipline, the gold price pullback is not a warning signal, but an investment opportunity. Analysts generally believe that the fundamentals supporting gold remain strong, including central bank purchases, Asian demand, and under-allocation by Western investors.

After the Federal Reserve’s October FOMC meeting, expectations for a December rate cut decreased, weakening the appeal of holding gold and causing a temporary setback for the dollar devaluation trade. But Stephen Innes, managing partner at Asset Management, believes that this hot trade may currently be "in hibernation, but is unlikely to be dead."

Innes stated that the long-term bull market in gold remains based on the "slow burn dollar devaluation trade," which stems from global unease over "permanent deficits, constantly rising interest costs, and gradual monetization of government debt." Once the dollar devaluation trade restarts, gold’s role as a mirror of sovereign credit will stand out again in 2026.

Is the current pullback more likely a healthy adjustment?

Recently, gold’s retreat from record highs has raised doubts in the market about whether the rally has peaked. But technical analysis shows it is more likely a healthy consolidation rather than a trend reversal.

According to World Gold Council strategists, gold prices in October gave back most of their gains due to "momentum release and dollar strength,” but geopolitical risks helped gold retain monthly gains.

Based on technical analysis, they have yet to see a "sell signal" for long-term momentum; October’s price weakness probably provided a "healthy and much-needed breather" for the core long-term upward trend.

Jan Skoyles, UK marketing director at GoldCore, said: "Gold’s pullbacks are not conclusions, but adjustments. They are pauses preparing the market for its next move."

She noted that the world is no more stable than when the rally began—debt is higher, geopolitical issues have worsened, and policy discipline has become "a relic of the past."

Skoyles believes that this pullback is "not a warning signal, but an opportunity." Central banks are buying gold at "a speed unimaginable a decade ago."

According to World Gold Council data, this year central banks are expected to add more than 1,000 tons to global gold reserves for the fourth consecutive year. These purchases are "not speculative... but defensive measures."

Dollar devaluation trade enters hibernation

The shift in Federal Reserve policy expectations is the direct reason for the cooling of the dollar devaluation trade.

Peter Spina, founder of GoldSeek.com, pointed out that after the Fed’s October meeting, market expectations for a December rate cut began to decline; the prospect of higher rates helped keep real interest rates above zero, meaning "the incentive to hold gold has decreased, as short-term yields may offer returns that beat inflation."

Nevertheless, this trade logic has not been broken. Innes emphasized that the basis for gold bulls still is the long-term trend driven by globally rising concerns over fiscal irresponsibility. Worries across nations over persistent deficits, increasing interest burdens, and government debt monetization are driving investors to seek dollar alternatives.

U.S. government debt and politics will undoubtedly play an important role for gold in the new year. Innes said, "With fiscal math tightening and the political cycle restarting, prospects for 2026 could easily reignite gold’s role as a mirror of sovereign credit."

But before the next ignition point arrives, "there may be a lot of noise: false starts, short squeezes, and cyclical liquidations." Innes noted that for traders who think in terms of cycles instead of headlines, "the destination is still higher prices."

This judgment is premised on the dollar devaluation trade regaining market favor, and the structural factors supporting this trade—fiscal imbalance, debt monetization, and sovereign credit concerns—have not vanished.

Spina also forecasts that gold could pull back "hundreds of dollars" during its consolidation phase, but once this phase ends, persistent strong fundamentals will continue to drive gold to new records, quite possibly rising to $5000 or more next year.

Spina highlighted three major factors supporting gold prices:

First is continued central bank purchases. World Gold Council data shows that central banks are expected to add over 1,000 tons to global gold reserves for the fourth consecutive year this year. Second is demand from Asian buyers. Third is the allocation space for Western investors, whose proportion of investments in gold assets is still relatively low.

Analysis believes the current pullback is merely fuel for the next round of gains, and whether the $5000 target can be achieved depends crucially on when the dollar devaluation trade regains dominance.

Risk Warning and DisclaimerThe market involves risk, and investments should be made cautiously. This article does not constitute personal investment advice, nor does it take into account any special investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Any investment based on this is at your own risk. ```