Gold prices to break $5,000 next year? Analysis: The premise is that the "dollar depreciation trade" becomes popular again

Despite the recent pullback in gold prices, the core logic driving the rise of precious metals this year—the "dollar devaluation trade"—has not disappeared, and it is expected to break through $5,000 next year. This expectation is based on investors' concerns about ongoing fiscal deficits, rising interest costs, and the monetization of government debt, leading to a resurgence of the so-called "dollar devaluation trade."

Recently, gold prices have significantly declined, currently down 8.5% from the record high in October, sparking discussions in the market about whether the upward trend has paused or peaked. However, analysts point out that against the backdrop of rising global debt, geopolitical tensions, and relaxed policy discipline, the pullback in gold prices is not a warning signal but an investment opportunity. Analysts generally believe that the fundamentals supporting gold prices remain strong, including central bank purchases, Asian demand, and under-allocation by Western investors.

After the Federal Reserve's October meeting, expectations for a rate cut in December decreased, weakening the appeal of holding gold and temporarily hindering the dollar devaluation trade. However, Asset Management managing partner Stephen Innes believes that this popular trade may currently be "in hibernation, but it is unlikely to be dead."

Innes stated that the long-term bull market for gold still rests on the "slow-burning dollar devaluation trade," stemming from global unease over "permanent deficits, rising interest costs, and the gradual monetization of government debt." Once the dollar devaluation trade restarts, gold's role as a mirror of sovereign credit will again be highlighted in 2026.

Is the Current Pullback More Likely a Healthy Adjustment?

The recent decline in gold prices from record highs has raised questions in the market about whether the upward trend has peaked. However, technical analysis suggests that this is more likely a healthy consolidation rather than a trend reversal.

According to strategists at the World Gold Council, gold prices in October retraced most of their gains due to "momentum release and a stronger dollar," but geopolitical risks helped gold prices retain gains for the month.

Based on technical analysis, they have not yet seen a "sell signal" for long-term momentum, and the price weakness in October is likely to provide a "healthy and much-needed breather" for the core long-term upward trend.

Jan Skoyles, the UK marketing director at GoldCore, stated: "The pullback in gold is not a conclusion but an adjustment. They are pauses preparing the market for the next move."

She pointed out that the current world is not more stable than when the upward trend began—debt is higher, geopolitical issues have worsened, and policy discipline has become a "thing of the past."

Skoyles believes that this pullback "is not a warning signal but an opportunity." Central banks are purchasing gold at a "speed unimaginable a decade ago."

According to data from the World Gold Council, central banks are expected to increase global gold reserves by over 1,000 tons for the fourth consecutive year. These purchases "are not speculative... but defensive measures."

Dollar Depreciation Trading Falls Asleep

The shift in Federal Reserve policy expectations has become the direct reason for the cooling of dollar depreciation trading.

Peter Spina, founder of GoldSeek.com, pointed out that after the Federal Reserve's interest rate meeting in October, market expectations for a rate cut in December began to decline. The prospect of higher interest rates helps keep real rates above zero, which means "the incentive to hold gold decreases as short-term yields may pay returns above inflation."

Nevertheless, this trading logic has not been broken. Innes emphasized that the fundamentals for gold bulls are still driven by a long-term trend of global concerns over fiscal irresponsibility. The anxiety of countries around the world regarding persistent deficits, increasing interest burdens, and the monetization of government debt constitutes the fundamental motivation for investors seeking alternatives to the dollar.

U.S. government debt and politics will undoubtedly play an important role in gold in the new year. Innes stated, "As fiscal arithmetic tightens and the political cycle restarts, the outlook for 2026 could easily reignite gold's role as a mirror of sovereign credit."

However, before the next ignition point arrives, "there may be a lot of noise: false starts, short squeezes, and periodic liquidations." Innes noted that for traders thinking from a cyclical rather than headline news perspective, "the destination remains higher price levels."

This judgment is predicated on the return of dollar depreciation trading to market favor, and the structural factors supporting this trade—fiscal imbalances, debt monetization, and sovereign credit concerns—have not disappeared.

Spina also anticipates that gold may pull back "hundreds of dollars" during the consolidation phase, but when this phase ends, the persistently strong fundamentals will continue to drive gold prices to new records, likely rising to $5,000 or more next year.

Spina pointed out three major support factors for gold prices:

First is the continued purchasing by central banks. According to the World Gold Council, central banks are expected to increase global gold reserves by more than 1,000 tons for the fourth consecutive year. Second is the demand from Asian buyers. Third is the allocation space for Western investors, whose investment ratio in gold assets remains relatively low.

Analysis suggests that the current pullback is merely a buildup for the next round of increases, and whether the $5,000 target can be achieved depends crucially on when dollar depreciation trading regains dominance.