(Kitco News) - Gold’s relentless rally is no longer just defying expectations—it is actively breaking the analytical frameworks that investors and economists have relied upon for decades.
That is the stark assessment of Nitesh Shah, head of commodities and macroeconomic research at WisdomTree, who told Kitco News that traditional valuation models are struggling to function in a world defined by geopolitical fracture, institutional uncertainty, and rising doubts over the long-term stability of the U.S. dollar.
“What we’re living through right now goes way beyond what my model is capable of dealing with,” Shah said in an interview. “The framework I use was calibrated in a relatively stable world. That world no longer exists.”
Shah’s models—like many used across the industry—were built using data spanning roughly three decades, from the mid-1990s through the early 2020s. That period was defined by moderate inflation, credible central banks, and a broadly rules-based global order.
“What we’re seeing now is a structural break,” he said. “There are new risks coming to the fore that simply don’t exist in the historical data.”
That disconnect is increasingly visible in the price action. Gold has surged despite only modest changes in speculative futures positioning and mixed flows into exchange-traded products—signals that would normally be required to justify such a move. In this environment, Shah said that it is easy to imagine gold prices ending the year above $6,000 an ounce, or even higher.
Shah’s bullish outlook on gold comes as prices trade down from their record highs above $5,500 an ounce. Spot gold last traded at $5,287.50 an ounce, down more than 2% on the day.
But while gold looks overextended, Shah said that the market doesn’t look frothy.
“I can’t put this into a neat framework anymore,” Shah said. “That doesn’t mean it’s irrational. It means the world has changed.”
Although gold prices are up more than 22% so far this month, Shah noted that speculative positioning data shows futures exposure has merely returned to above-average levels—not extremes—and ETP flows, while positive overall, have been far from one-directional.
“The usual drivers aren’t doing the heavy lifting,” Shah said. “That tells you there’s something else going on.”
Geopolitics is no longer a tail risk
That “something else” is geopolitics—but not in the episodic way to which markets have grown accustomed.
WisdomTree’s research highlights a renewed and escalating wave of geopolitical risk entering 2026, ranging from U.S.-driven regime change in Venezuela to tensions surrounding Greenland, Iran, and global trade realignment. Even if specific risks ease, Shah said that chaos remains.
“The key issue is that nobody believes this is the end of the story,” Shah said. “Even when tensions de-escalate briefly, markets don’t trust that the calm will last. Gold is pricing in the idea that instability is now persistent, not temporary.”
At the same time, if geopolitical chaos has become a permanent feature of the investment landscape, so too has concern over the independence of major monetary institutions—particularly the Federal Reserve.
Shah said the repeated political attacks on the Fed in 2025 were a defining theme of the year, and have continued into early 2026.
“This is one of the biggest structural supports for gold right now,” he said. “If markets start to believe that monetary policy can be directed by political pressure, then fiat currency risk premiums have to rise.”
Gold’s underinvestment problem
Despite record prices, Shah believes gold remains structurally underowned.
WisdomTree’s portfolio optimization research suggests an allocation of 15% to 20% in gold can improve risk-adjusted returns—far above the typical 1%–2% exposure held by most investors.
“Gold has traits of both bonds and equities,” Shah said. “It can defend in crises and perform in inflationary growth environments. From a portfolio construction perspective, it’s still underutilized.”
The implication is stark: even a modest reallocation from global bond markets into gold could have outsized price effects, given gold’s relatively small and less liquid market structure.
“That incremental shift is enough,” Shah said. “You don’t need a wholesale collapse of bonds to move gold dramatically.”
Although gold’s upside potential seems limitless in this environment, Shah said he is also keeping an eye on downside risks. However, he added that he doesn’t see the potential for a sharp selloff like the one that rocked the market more than a decade ago.
Why the 2013 playbook doesn’t apply
Skeptics often point to 2013 as a cautionary tale—a year when gold prices collapsed as institutional investors fled, even though physical demand surged.
Shah acknowledges the risk but sees critical differences.
“In 2013, there was a clear macro trigger,” he said. “The Fed was ending quantitative easing and signaling tighter policy. Today, I don’t see an equivalent catalyst.”
Instead, today’s risks are decentralized and political, making them harder to resolve cleanly.
“Maybe one headline risk fades,” Shah said. “But another emerges almost immediately. That’s why the downside case feels harder to justify right now.”
