Wells Fargo sees gold at $6,300 by end-2026 despite recent slump

Gold has failed to behave as a safe-haven asset over the past month, with macroeconomic headwinds weighing on sentiment.

However, Wells Fargo believes that long-term prospects for the precious metal remain well-supported. 

Gold prices on COMEX climbed 2% on Friday, buoyed by a weaker dollar, which made the metal cheaper for overseas buyers. 

The yellow metal is still set for its fourth straight weekly decline as higher energy prices feed into concerns over rising inflation, which may keep interest rates elevated for long.

Macroeconomic headwinds drive gold’s decline

Wells Fargo commodity analysts, in their recent global investment strategy report, attribute the unexpected decline in gold prices to a complicated macroeconomic landscape. 

They suggested that the impact of higher interest rates, a strengthening US dollar, and increasing real yields is currently overshadowing the supportive factor of geopolitical risk. 

Gold prices are currently experiencing their most significant losing streak since 1983, a decline that accompanies the recent comments. 

Since reaching record highs of $5,600 an ounce in late January, spot gold has dropped nearly 22%. It last traded at $4,391.50 an ounce, marking a nearly 2.7% decrease just on that day.

Meanwhile, the June gold contract on COMEX was last at $4,499.40 per ounce, up 2.1% from the previous close. 

Inflation, geopolitics, and restraint of high rates

Gold’s role as a safe haven quickly diminished after an initial rise at the beginning of the Middle East conflict.

This was due to investors adjusting their expectations for interest rates, which, in turn, channeled safe-haven capital into the US dollar.

Rising real yields are specifically detrimental to gold, according to Wells Fargo, because they raise the opportunity cost associated with holding the non-yielding asset.

Persistent inflation concerns, exacerbated by higher energy prices, have amplified this dynamic.

The conflict has at times driven oil above $100 per barrel, raising fears that central banks will need to maintain a tighter policy stance for an extended period.

The price of Brent crude has risen above $105 a barrel, fueling concerns about inflation.

This increase is largely due to the Middle East conflict, which has almost completely halted shipments through the Strait of Hormuz, a crucial transit point for about one-fifth of the world’s crude oil and LNG.

Higher oil prices are expected to drive up manufacturing and transport costs, intensifying inflationary pressure. 

While inflation generally makes gold more attractive as a hedge, the asset’s demand is being restrained by high interest rates, given that it is non-yielding.

According to the CME Group’s FedWatch Tool, traders currently do not anticipate any US rate cuts in 2026.

Furthermore, there is a 35% probability of a rate hike before the end of the year. 

This sentiment is a stark contrast to the expectations of two rate cuts that prevailed before the recent conflict began.

Wells Fargo remains bullish, sees tactical opportunity

Wells Fargo maintains a firm, long-term bullish outlook on gold, despite the yellow metal’s recent period of weakness.

Driven by continued demand from central banks and the expected easing of US dollar strength and yields, the bank projected prices will be in the range of $6,100 to $6,300 per ounce by the end of 2026.

The consistent purchasing activity by central banks, which remains significantly higher than long-term averages, was also noted by the analysts as a fundamental, structural driver of demand.

Wells Fargo anticipated that the conflict with Iran will only slightly affect the economy.

They project that key obstacles for gold—namely, inflation pressures and high Treasury yields—will diminish later this year, leading to a more favorable environment for the precious metal.

The bank asserted that the US is now better equipped to withstand an energy crisis compared to previous periods. 

This resilience is attributed to several structural changes, including a greater reliance on a services-driven economy, the country’s position as a net energy exporter, and a reduction in the proportion of household expenditure allocated to energy.

The expectation is that the conflict will be relatively brief, which will minimise the danger of a prolonged rise in inflation, Wells Fargo said.

Wells Fargo views gold’s recent dip, not as a sign of lost safe-haven appeal, but as a “tactical opportunity.” 

The bank advises investors to gradually establish positions during this pullback, suggesting that, as the current conflict stabilizes, capital might shift from energy markets into precious metals.