(Kitco News) - Falling interest rates will continue to drive gold prices higher through year-end and into 2026, but one market strategist says there is another factor that could amplify the precious metal’s bullish momentum.
In an interview with Kitco News, Jesse Colombo, an independent precious metals analyst and founder of the BubbleBubble Report, said that given where two-year bond yields are, interest rates will have to go lower, which will ultimately drive gold prices to $4,000 an ounce.
He added that markets questioning the political independence of the Federal Reserve are adding to expectations that the central bank could overreact to disappointing economic data.
“The loss of Fed independence means that we could see a lot more easing than is necessary,” he said. “All this confusion will continue to support higher gold prices.”
However, beyond near-term price action driven by the Federal Reserve, Colombo said that he is watching a storm brewing on the horizon that could drive gold prices significantly higher. He said he is seeing signs of a volatility squeeze in the marketplace, as fear sentiment—as measured by the VIX volatility index—has fallen to lows not seen since the start of the year.
“Historically, when we have seen volatility drop to unusually low levels, it heralds a big move,” he said. “I think we could see another strong directional breakout very soon.”
Colombo noted that through the summer, as gold prices were trading around $3,300 an ounce, volatility in the precious metals space saw a similar compression, and once that compression was released, gold prices took off. Not only is gold trading near record highs just below $3,700 an ounce, but it's also seeing its best monthly performance since March, when markets were initially rocked by global trade and geopolitical uncertainty.
Spot gold prices last traded at $3,687.40 an ounce, up 7% on the month and roughly 40% year-to-date.
Colombo said that he sees an inverse pattern building in U.S. equity markets and the U.S. dollar. He noted that equities and the greenback have both benefited from compressed volatility, and once that breaks, prices could head dramatically lower.
“There is just a lot of confusion in the marketplace and everyone is waiting to see what is going to happen and what the Federal Reserve is going to do,” he said. “Once we get some clarity, my bias is for more weakness in the U.S. dollar, and that will support higher gold prices. It’s late in the year, but $4,000 gold is still in the cards by year's end because of the momentum we are seeing. This is the kind of momentum we would expect to see in a bull market.”
Along with $4,000 gold, Colombo said that he also expects it is only a matter of time before investment demand drives silver prices back to $50 an ounce.
Silver has outperformed even gold, with prices up roughly 46% this year and last trading above $42 an ounce; however, Colombo noted that it is still extremely cheap compared to gold.
He added that higher gold prices, along with rising market uncertainty and volatility, will continue to push more investors into silver.
“People are looking to diversify; they're looking for relatively uncorrelated assets, and gold and silver fit that description very well,” he said. “This is the time for gold and silver to shine.”
