(Kitco News) - The world is taking notice of gold’s monumental achievement as prices continue to push above $4,000 an ounce. However, one of the first analysts to call this milestone is now warning investors to exercise some caution.
While gold is seeing impressive upside momentum, Bernard Dahdah, Precious Metals Analyst at Natixis, warned that it can also experience significant volatility when market sentiment shifts.
Dahdah said he remains neutral on gold through 2026, adding that the next two to three months could be volatile.
“Our view is that in the near term (the next two to three months), the price of gold is likely to face downside risks, but this will be followed by more likely upside risks in 2026,” he said. “We could see selling pressure following a hike in margins, with leveraged investors needing to liquidate positions, and to a lesser extent, some profit-taking. We have seen this situation several times in the past, resulting in a 5% to 10% drop in prices within days — August–September 2011 (debt ceiling), 2020 COVID crisis, and March 2022 during the Ukraine war.”
Dahdah said gold could also struggle amid a shift in geopolitical uncertainty if the U.S. Congress passes new funding legislation to end the current government shutdown, which is now entering its second week.
Some analysts have noted that it would take a prolonged shutdown to create an economic environment that provides further support for gold. Dahdah pointed out that the gold market fizzled after the resolution of the previous two government shutdowns under Presidents Obama and Trump, which lasted 16 days and 35 days, respectively.
According to Dahdah, the two biggest drivers for gold remain U.S. monetary policy and shifting sentiment in U.S. Treasury markets.
Although the Federal Reserve is expected to lower interest rates at its next two meetings, Dahdah said there remains considerable uncertainty surrounding monetary policy through 2026 — especially as President Trump and his administration continue to pressure the central bank to cut rates aggressively, even as inflation remains elevated.
Along with falling interest rates, Dahdah noted that fears of stagflation and recession, stemming from Trump’s ongoing tariffs and global trade tensions, are prompting international investors to diversify away from U.S. Treasuries.
“In the two weeks following Liberation Day, we saw a $150 billion outflow from U.S. Money Market Funds (MMFs) — the sharpest outflow since the financial crisis — part of which helped propel gold prices higher,” he said.
Dahdah added that because of the sheer size of the U.S. money market, even a small diversification away from it could significantly lift gold prices.
“If a 1% outflow from U.S. Money Market Funds (MMFs) occurs, with 20% going into physical gold and the rest into futures, the price of gold could rise by around 10%,” he said.
While Dahdah sees solid fundamentals for gold, he also warned that higher prices could dampen physical consumption, particularly in the global jewelry market. Natixis expects gold prices to average around $3,760 an ounce next year. Dahdah also said that higher prices could slow central bank gold demand in 2026.
“At the current price level, we are seeing demand destruction in gold jewelry and a slowdown in central bank buying. Combined, both sources of demand account for around 70% of global demand for the metal,” he said.
