Are soaring gold prices hiding underlying risks?

On October 9th Eastern Time, both spot gold and spot silver prices turned lower after hitting new highs, with spot gold falling below the $4,000 per ounce threshold. COMEX gold futures plummeted over 1.9%, while the Philadelphia Gold and Silver Index closed down significantly by 4.19%. Bank of America, one of Wall Street's biggest gold bulls, warned in its latest report that precious metals have realized most of their upward expectations, and gold prices could retreat to $3,525 per ounce by the fourth quarter of 2025.

Several analysts believe gold is currently in an overbought state and may see a 5%-6% correction. However, looking at gold's medium to long-term prospects, analysts generally believe that gold's long-term bull market foundation remains solid, and any pullback could present a buying opportunity.

**Gold Bull Market Suddenly Under Warning**

On October 9th Eastern Time, spot gold and spot silver prices both turned lower after hitting historical highs during trading, with spot gold falling below the $4,000 threshold. As of press time, spot gold was trading at $3,990.24 per ounce. At the close on October 9th, COMEX gold futures fell sharply by 1.95% to $3,991.1 per ounce, while COMEX silver futures closed down 2.73% at $47.655 per ounce.

Analysts pointed out that the main reasons for gold's decline were the continued strengthening of the dollar index and temporary easing of tensions in the Middle East, with some speculators choosing to "lock in profits."

Prior to this, New York Mercantile Exchange gold futures had broken through $4,000 per ounce during trading, marking the first time in the commodity's history to breach this price level. London spot gold also briefly surpassed $4,000 per ounce.

Analysts noted that gold's breakthrough was directly related to market concerns about a potential U.S. federal government "shutdown." Additionally, political risks in countries like France and Japan intensified market risk-aversion sentiment.

Notably, against the backdrop of gold's continued surge, one of Wall Street's biggest gold bulls has begun showing more caution. Bank of America warned in its latest report that precious metals have realized most of their upward expectations and currently appear slightly overbought.

Bank of America technical analyst Paul Ciana stated that as gold approaches $4,000 per ounce, various multi-timeframe technical signals and conditions warn that the upward trend is becoming exhausted. Under these circumstances, gold prices could see consolidation or correction in the fourth quarter of 2025.

Previously, Bank of America's commodities team was among the first to emphasize the $4,000 per ounce target at the beginning of the year, stating then that this level could be reached without requiring much new investment demand.

Year-to-date, gold has risen nearly 50%, marking the best annual performance since 1979. Meanwhile, other precious metals including silver and platinum have also recorded strong gains.

Paul Ciana noted that this year's rally could signal a major bull market for gold. However, historically, such bull markets are often preceded by significant selloffs.

He provided a detailed review of gold's historical price movements, pointing out that from the 2015 low to 2020, gold prices accumulated an 85% gain, then corrected significantly by 15% in 2022, while the current rally has pushed gold prices up 130%. However, compared to rallies in the early 21st century and 1970s, gold's latest bull market cycle remains relatively modest in scale.

Paul Ciana added that gold's total gains during the 1970-1980 boom period reached as high as 1,725%, though with interim corrections. The subsequent 1980-1999 decline period saw gold prices fall cumulatively by 59%. From 1999 to 2011, gold prices rose again by 640%, also experiencing interim corrections. Subsequently, gold prices underwent a 38% pullback in 2015.

Looking at gold's future upside potential, Paul Ciana stated that if the current bull market rally can achieve a 400% gain from 2015 levels, gold prices could break through $5,000 per ounce. If it can replicate the 2000s bull market, gold prices might approach $7,000 per ounce.

However, Paul Ciana warned that gold prices could retreat to $3,525 per ounce by the fourth quarter of 2025.

Paul Ciana believes gold's initial support level is at $3,790 per ounce and warned that potential risks could extend gold's decline to $3,525 per ounce.

**Beware Short-term Correction Risks**

Previously, multiple analysts and industry experts also warned that gold is currently in an overbought zone and could see a 5%-6% correction.

Renisha Chainani, Research Head at Mumbai refiner Augmont, stated: "Gold is currently in an overbought zone and could see a 5%-6% correction in the short term, followed by consolidation and renewed upward movement."

Philip Newman, Managing Director at consulting firm Metals Focus, also pointed out that gold prices might see a potential correction after this rally, but this would represent a "buying opportunity" for investors waiting on the sidelines.

Despite short-term risks, analysts believe the macroeconomic fundamentals supporting gold remain unchanged.

Nicholas Frappell, Head of Global Institutional Markets at ABC Refinery, noted that almost all previous price forecasts reached target levels faster than anticipated, reflecting the strength of market demand.

Analysts identified key factors supporting the long-term bull market:

1. **Accommodative Monetary Policy**: Markets widely expect the Federal Reserve to announce rate cuts at its September 17th meeting. Trump's continued pressure on Fed Chairman Powell for faster rate cuts has intensified market expectations for a low interest rate environment. Gold typically performs well in low interest rate environments.

2. **Safe-haven Demand**: Ongoing geopolitical risks and concerns about the global economy continue to cement gold's position as the preferred hedge asset.

3. **Strong Official and Investment Demand**: Renisha Chainani believes gold's long-term bull market appears intact because demand, particularly from central banks and ETFs, continues to accelerate.

Regarding gold's future price trajectory, Augmont's Renisha Chainani provided a very aggressive forecast, believing gold prices could reach new highs above $4,200 per ounce in 2026 after short-term consolidation. The vast majority of industry participants at the India Gold Conference expect gold's bull market to continue through 2026, driven by U.S. rate cuts, strong investment demand, and geopolitical risks.

JPMorgan predicts that in extreme scenarios (funds flowing from U.S. Treasuries to gold), gold could break through $5,000 per ounce. Goldman Sachs also believes that if just 1% of individual investors holding U.S. Treasuries switch to gold, gold prices would rise to nearly $5,000 per ounce.