Gold and fair value: no catastrophe planned

XAU/USD

Key zone: 4,600.00-4,750.00

Buy: 4,750.00(on a pullback after retesting the 4.650 level); target 4,950-5,100; StopLoss 4,650.00

Sell: 4,550.00(on strong negative fundamentals); target 4,350-4,200; StopLoss 4,650.00

Gold continues to set new highs amid geopolitical risks, including the Greenland factor, as well as persistent expectations of interest rate cuts. At the same time, Bloomberg Intelligence’s model-based estimate of the short-term “fair” price points to only $2,500 per troy ounce. The gap between the calculated and market price exceeds $2,100, while the average spread last year was around $490.

A reduction of this imbalance — that is, a correction of the market price of gold toward model values — is not expected under the current market configuration.

Let us recall that gold’s fair value is a calculated price based on a combination of fundamental factors:

• real interest rates;
• inflation expectations;
• dollar dynamics;
• macroeconomic and geopolitical uncertainty;
• structural demand (central banks, jewelry, industry).

This price reflects a state of neutral balance without extreme risks or positioning distortions. The further the market price deviates from fair value, the higher the probability of sharp corrections — but also the faster they are bought back as long as demand persists.

At present, gold is trading significantly above its “fair” levels, forming an expanded risk premium that may persist for an extended period. Price growth is driven by the classic safe-haven function of the precious metal amid elevated uncertainty, as well as by increased interest in commodity assets as portfolio diversification tools.

Monetary authorities are also participating in this process: for example, over the past year the Swiss National Bank earned approximately $33 billion from the rise in gold prices.

The combination of these factors, amplified by uncertainty surrounding the future policy of the Federal Reserve — especially against the backdrop of a possible leadership change — is confidently shifting the price of gold into the area above $5,000 per ounce.

However, in the long-term perspective such levels look fundamentally unsustainable. To justify them, the U.S. Economic Policy Uncertainty Index would need to rise to 650 points from the current 211 (more than threefold), and the Geopolitical Risk Index would need to increase to 400 points from the current 200 (double). Even under an extreme Trump economic policy scenario, such values would significantly exceed current index readings.

So what is the result?

The fair price of gold today is almost twice as low as the market price. The further the price exceeds fair value, the higher the risk of impulse-driven sell-offs, and the more relevant profit-taking and the use of trailing stops become.

All levels above $2,500 are a zone of speculation and a premium paid for market fear. As long as fear remains active, the bullish trend persists. A return of attention to real fundamentals will occur only when panic leaves the market.

In the near term, there are no signs of such a scenario.

So we act wisely and avoid unnecessary risks.

Profits to y’all!