Gold prices have taken a sharp dive from their peak earlier this year, falling to just over US$3,900 per ounce this morning. This marks an 8% decline so far in 2026 and a 25% drop from the high of US$5,500 reached in February. The decline has been driven by higher real yields, a stronger U.S. dollar, and the allure of riskier assets in the artificial intelligence boom.
The consensus view suggests gold will recover to average US$4,600 by the end of 2027. However, Capital Economics paints a much bleaker picture. They predict gold will continue to fall, reaching US$3,600 by the end of next year, with silver faring even worse due to weakening industrial demand.
Capital Economics cites several factors for their bearish outlook, including a hawkish U.S. Federal Reserve, which they expect to implement three rate hikes, with the possibility of more. They also warn of souring investor sentiment and the potential bursting of the AI bubble, which could force investors to sell gold to meet margin calls.
Kieran Tompkins, senior climate and commodities economist at Capital, notes that gold has lost its effectiveness as a hedge during market turmoil due to its close correlation with equities. He also points out that gold prices fell alongside tech stocks this week, even as bond yields declined, a worrying sign for bullion investors.