Central bank policy errors may drive gold to $5,500/oz by Q1 2027: expert

Gold prices are likely to be much higher by the first quarter of 2027 despite struggling below the $4,600 per ounce currently. 

Short-term volatility and shifting macroeconomic risks raise the likelihood that central banks could make policy mistakes a backdrop that ultimately supports gold, Nitesh Shah, head of commodities and macroeconomic research at WisdomTree, told Kitco News in an interview. 

Despite geopolitical tensions, gold has not performed well as a traditional safe-haven asset, according to Shah.

However, he suggests that ongoing risks within the global economy are increasing, thereby establishing a positive outlook for precious metals.

“Gold still isn’t quite performing as you’d expect as a full-fledged geopolitical hedge,” he was quoted as saying in the report. 

Policy errors and macroeconomic risks as bullish catalysts

Central banks face a difficult dilemma: their efforts to combat inflation through aggressive rate hikes risk exacerbating recessionary pressures or triggering stagflation, as Shah highlighted.

This precarious balancing act increases the probability of policy errors, which, in turn, acts as a significant bullish catalyst for gold.

“Central banks are fully cognizant that there’s not much they can do with interest rate policy without inflicting pain,” he said.

Evolving leadership and shifting policy priorities introduce uncertainty about the future direction of monetary policy, which, in turn, poses a risk of further market destabilization.

Shah suggested that an attempt to accomplish too much too quickly might result in policy errors, creating uncertainty that could, in turn, be supportive for gold.

Long-term bullish outlook and silver forecast

Despite the prevailing policy risks and market volatility, Shah maintains a long-term bullish outlook on gold.

He anticipated gold prices will approach their all-time highs again, as per his current base-case scenario, forecasting this return by the first quarter of 2027.

Shah projected gold to reach approximately $5,500 by the first quarter of 2027.

He specified that this forecast leans towards the lower boundary of a wider potential range, citing robust investment demand as a key factor.

Shah predicts that gold will remain around $4,630 an ounce, even under a more pessimistic outlook that includes a drop in inflation to 2%, a stronger US dollar, and an increase in bond yields.

Shah believes the risks for the asset are skewed toward the upside, stating that "even with quite bearish assumptions, the downside is relatively capped." 

He also holds a constructive view on silver, though he acknowledged that industrial demand introduces an added layer of uncertainty.

The forecast for silver is approximately $92.50 an ounce by the first quarter of 2027, Shah said.

However, there is potential for this price to rise higher, influenced by trends in electrification and demand from the solar energy sector.

He suggested that significant gold price increases should lead to a rise in silver's price.

Additionally, he noted that the worldwide movement toward diversifying energy sources could sustain silver's demand in the long run.

Shah pointed out that rising recession risks, independent of monetary policy decisions, could serve as a key factor driving up gold prices.

Shifting demand and gold’s strategic role

Shah stated that gold prices are typically supported by recessionary risks, and if those risks materialise, the metal's price will be "very supportive."

Furthermore, he highlighted structural concerns, including increasing government debt and sustained downward pressure on the US dollar, as supplementary positive factors for gold.

“We may start to see structural depreciation reemerging with pressures on budgets, and that could help gold prices,” Shah said. 

Despite high prices negatively impacting jewelry sales, the market remains supported by strong and consistent demand from Asia, notably from China and India.

Shah pointed out that demand for gold has not disappeared, but rather "shifted."

He added that in many regions, gold maintains its status as a "wearable investment."

Shah also highlighted a concurrent trend: institutional investors, following years of underweight allocations, are now strategically increasing their exposure to gold.

Shah elaborated that gold is increasingly seen as an alternative to conventional fixed-income investments, especially given the current volatility in bond markets.

Furthermore, he noted that persistent geopolitical tensions and the growing tendency of central banks to utilize gold as a readily available, neutral reserve asset are strengthening its enduring attractiveness.

Shah believes that current geopolitical risks are underestimated and should be more fully factored into the price of gold.

He suggested that the current price of gold is "a little bit lower than where it should be given the prevailing risks." 

With ongoing volatility and an increasingly complex economic environment for policymakers to manage, Shah anticipated strong support for both gold and silver.

“The environment is uncertain, and that uncertainty is ultimately what drives investors toward gold.”