Gold prices are hovering near record highs above $2,500 per ounce, making it a standout year for gold enthusiasts. However, one top investment strategist suggests the precious metal’s impressive run may soon come to an end.
Jim Paulsen, a 40-year market veteran who spent two decades at Wells Fargo and most recently served as chief investment strategist at The Leuthold Group before retiring, believes that gold prices are poised to decline, even as the Federal Reserve moves to cut interest rates. Paulsen argues that gold has already enjoyed a significant rally, and with recession fears fading, the metal may lose its appeal.
Gold’s price has surged over 22% this year, outperforming major indexes like the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite. The VanEck Gold Miners exchange-traded fund, which includes stakes in major miners like Newmont, AngloGold Ashanti, and Agnico Eagle Mines, has also climbed more than 20%.
In a post on his Substack, Paulsen wrote, “Gold is about to lose its glitter.” He suggests that the metal may not benefit from rate cuts, as it has become expensive relative to other commodities, and rising private sector confidence could reduce gold’s allure as a safe-haven asset.
Paulsen acknowledges that gold typically performs well during periods of rate cuts, as the Fed often lowers rates in response to economic slowdowns or financial crises, which increases gold’s appeal as a haven. However, in an interview with Barron’s, Paulsen said this might be a rare case where the Fed achieves a “soft landing”—guiding the economy and stock market to a sustainable path without triggering a recession. Such a scenario, he suggests, may not be favorable for gold.
“We’ve been living in a world of chronic pessimism since the pandemic. It’s oddly pronounced,” Paulsen said. “This could be the first time in a while where the Fed eases during a bull market, boosting confidence. If confidence rises, that’s like the wrath of God for gold.”
He also pointed out that as rates decline, the dollar may weaken slightly, which tends to pressure gold prices. “There’s always pressure on gold when the dollar starts to fall,” he explained. “This should be no different, and it usually leads to a decline in gold prices.”
While central bank buyers, especially from China, India, and other emerging markets, have contributed to gold’s recent price surge, Paulsen believes this factor has already been priced in. As a result, he argues that there is now more potential downside than upside for gold investors.