Nitesh Shah, Head of Commodities and Macroeconomic Research at WisdomTree, told Kitco News that gold's recent correction has brought prices back to fair value rather than signaling the end of the precious metal's bull market. Shah said investors overpriced future Federal Reserve rate hikes after the central bank's hawkish June monetary policy meeting. His valuation model showed gold trading at a large premium in January, a gap that has now disappeared. Shah described the correction as a healthy normalization after speculative excess pushed prices beyond fundamental value earlier this year.
Shah Questions Federal Reserve Rate Hike Expectations
Shah said the market has gotten ahead of itself in pricing Federal Reserve policy tightening. "I don't think I'm fully convinced we're going to get that many hikes that soon," he stated, noting that while the labor market remains strong and inflation is high, "the narrative isn't that different." Shah argued that aggressive balance sheet reduction by the Federal Reserve would constitute monetary tightening, reducing the need for multiple interest rate increases. "I think that's going to be monetary tightening in and of itself, and that will give less bandwidth for the hikes," he said.
Shah questioned whether policymakers can maintain a prolonged hawkish stance given the government's mounting debt burden. "Getting hawkish just means the interest payment bill goes significantly higher," he said. "At some point, if you hike, you will be forced to cut them straight after because you've engineered your own recessionary-type scenario or a disruptive unraveling of the financial system."
Gold Valuation Model Shows January Premium Has Closed
Shah's gold valuation model incorporates bond yields, the U.S. dollar, inflation, and speculative positioning. "If I revert back to my model, the gap between the actual prices and my model was massively wide in January," he said. "Now they're pretty much aligned with each other. I don't think we're massively far from fair value in gold prices." Shah attributed the earlier premium to frothiness in the market. "I think prices just got too high," he said. "It doesn't surprise me that much that prices have fallen since then, largely correcting for what looked like frothiness."
The alignment between market prices and fair value leaves gold positioned to resume its longer-term advance if macroeconomic conditions evolve as Shah expects. "Should inflation remain elevated, should bond yields contract a little bit more, should the dollar depreciate, then there's upside potential from gold here onwards," Shah said.
Shah Predicts Structural Dollar Depreciation
Shah identified the long-term direction of the U.S. dollar as the most important variable for gold. Although the dollar has strengthened in recent months as markets priced in a more hawkish Federal Reserve, Shah believes the rally will prove temporary. "I think the structural story for dollar depreciation still is there," he said. Shah pointed to persistent U.S. fiscal deficits and current account imbalances as fundamental drivers that will eventually weigh on the greenback. "Deficits on the budget and on the current account at some point should start to move towards more downward pressure," he said. "Right now, I think the dollar is strong just because of the expectations of higher Fed funds rates, which I also think may be a little bit misplaced."
Shah expects easing geopolitical tensions and improved global energy supplies to help moderate inflation over the medium term, reducing pressure on the Federal Reserve to continue aggressive tightening.
WisdomTree Maintains $5,000 Gold Target by Q1 2027
WisdomTree is maintaining its long-term bullish outlook for gold, expecting prices to be 25% higher by Q1 2027. "I still think over $5,000 is easily achievable," Shah said. While he acknowledged that some of the extraordinary buying momentum seen earlier this year may not return immediately, Shah said several structural sources of demand remain in place.
Shah noted that long-term investors should distinguish between tactical market positioning and gold's strategic role within diversified portfolios. "There are a variety of investors," he said. "Some look at gold as a core strategic holding and then may top up with big tactical allocations." Shah reported seeing increased inflows into WisdomTree's gold products. "We are seeing a little bit more inflow into our gold products, actually," Shah said. "Maybe it's to do with the fact that it's become a little bit cheaper."
Central Banks Continue Gold Accumulation Per World Gold Council
Shah highlighted continued central bank accumulation as a structural source of gold demand. He cited the World Gold Council's latest reserve manager survey, which showed a record share of respondents planning to increase their gold holdings over the next year. "Central banks certainly probably would be buying, and probably buying more now that price has eased," he said.
FAQ
What did Nitesh Shah say about gold's recent price correction?
Nitesh Shah of WisdomTree told Kitco News that gold's recent correction brought prices back to fair value rather than ending the precious metal's bull market. His valuation model showed gold trading at a large premium in January, a gap that has now disappeared.
Why does Shah question Federal Reserve rate hike expectations?
Shah said the market has overpriced future Fed rate hikes and questioned whether policymakers can maintain a hawkish stance given the government's mounting debt burden. He argued that aggressive balance sheet reduction would reduce the need for multiple interest rate increases and that sustained rate hikes could force the Fed to cut rates after engineering a recessionary scenario.
What is WisdomTree's long-term gold price target?
WisdomTree maintains a long-term bullish outlook for gold, expecting prices to be 25% higher by Q1 2027. Shah said he believes over $5,000 is easily achievable, citing structural demand from central banks and the potential for dollar depreciation.
