Despite gold's recent pullback from record highs, Jefferies' Chris Wood believes the recent decline presents an opportunity rather than a warning sign. In his latest Greed and Fear report, Wood urged investors to resume accumulating gold and gold mining stocks after an extended pause to refresh. According to reports from LiveMint, Wood sees this as an opportunity for investors to buy gold and mining stocks, anticipating a bull market amid ongoing geopolitical tensions and changing economic conditions. Gold has fallen around 7% from the beginning of the year after an extraordinary rally that saw prices hit record highs before retreating sharply in July. The precious metal is now down roughly 7% year-to-date, but continues to rank among the top-performing assets over the past year as other asset classes play catch-up.
According to LiveMint, Christopher Wood draws a parallel with the dot-com bust, arguing that when the Nasdaq-led technology sector drove the market lower, the bear market had by late 2000 spread beyond technology to other sectors as it became clear that the unwinding of the dot-com boom would affect the broader economy. Wood believes a similar scenario could unfold if the AI capex boom implodes, which he says would happen if credit issues come to the fore. This comes despite the broadening of the US equity market since the AI capex boom and the related increase in wealth effect in the US stock market, which have been among the main drivers of US economic growth over the past three years, along with easy fiscal policy. Any such collapse in capex spending would trigger an abrupt shift in US monetary policy expectations from tightening towards easing.
As reported by LiveMint, the geopolitical backdrop has already begun providing support for gold prices. Escalating tensions involving the United States, Iran and Iran-backed Houthi forces have revived demand for safe-haven assets. Concerns over disruptions to oil supplies through key shipping routes, including the Red Sea and the Strait of Hormuz, have increased investor demand for defensive assets such as gold. Higher crude oil prices could also add to inflationary pressures globally, complicating the Federal Reserve's policy outlook. While elevated interest rates generally weigh on non-yielding assets like gold, geopolitical uncertainty has helped offset some of that pressure by increasing demand for portfolio protection. Markets currently expect the Fed to leave interest rates unchanged at its next meeting, although traders continue to price in a high probability of a rate increase later this year.
The World Gold Council believes current gold prices largely reflect an environment characterised by moderate economic growth, cooling but still elevated inflation and expectations of limited additional central bank tightening. Under these conditions, it expects gold to remain broadly range-bound within roughly 5% of current levels. However, the Council believes several catalysts could reignite the rally. A weakening global economy, fresh geopolitical shocks, declining interest-rate expectations or renewed buying after the recent correction could push gold back towards US$4,500 per ounce or even higher if market conditions deteriorate further. For Wood, the bigger picture extends beyond near-term fluctuations, with the combination of potential stress in the AI investment cycle, shifting monetary policy expectations and persistent geopolitical uncertainty potentially laying the foundation for gold's next major bull market.
