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Over the next three to five years, gold is likely to underperform most risk assets and industrial commodities, with prices potentially remaining range-bound rather than extending the structural bull market witnessed over the past few years, according to a research report by YES Securities.
Gold previously enjoyed one of its strongest multi-year bull markets in history, supported by low real interest rates, monetary expansion, geopolitical uncertainty, and persistent central bank buying. However, the report highlighted that the macroeconomic regime that underpinned this rally is gradually coming to an end. "Our bearish view is not based on the disappearance of geopolitical risks or the end of central bank purchases. Instead, it is rooted in a far more powerful structural force-- the transition of the global economy from a 'Savings Glut' regime to a 'Capital Formation' regime," the report said. "The world is entering an era where governments and corporations will increasingly compete for capital to finance large-scale investment in defence, artificial intelligence, energy security, semiconductor manufacturing, industrial reshoring and infrastructure," the report added. This transition directly alters the underlying dynamics of sovereign yields and asset returns. Gold becomes attractive when investors earn little from holding cash or government bonds, whereas rising real yields substantially increase the opportunity cost of holding non-yielding assets. "Historically, the relationship between US real yields and gold has been one of the most reliable macro relationships across asset classes. Every major period of sustained gold underperformance coincided with rising or elevated real interest rates," the report stated. "Real yields may remain structurally higher than markets currently expect. Rather than representing a temporary cyclical phenomenon, elevated real rates could become a defining feature of the next investment regime as governments and corporations increasingly compete for scarce global savings." Real sovereign yields across major economies have already begun normalizing after years of financial repression, reflecting growing global demand for capital. If this repricing continues, gold will face sustained difficulties in generating momentum. Simultaneously, economic forces favour industrial materials over precious metals. As per the report, forces supporting higher capital formation are likely to create sustained demand for industrial commodities. "Copper, aluminium, electrical equipment, specialty steel, uranium, power infrastructure and engineering services all stand to benefit directly from AI infrastructure, electrification, defence manufacturing and reshoring initiatives," the report noted. Unlike industrial metals whose consumption rises with investment spending, gold demand remains primarily safe-haven appetite driven. "Therefore, the very macro forces lifting industrial commodity demand simultaneously increase real yields--the principal headwind for Gold," the report added, noting that commodity leadership may shift toward industrial metals. Consequently, market participants should recalibrate expectations. As per the report, rather than expecting a dramatic collapse in Gold prices, investors should prepare for a prolonged period of relative underperformance. Gold could increasingly resemble a lengthy phase of sideways movement punctuated by short-lived rallies during geopolitical shocks. "Such episodes may continue to occur, but they are unlikely to establish new secular highs if the underlying structural environment remains characterized by elevated real yields and expanding capital investment," the report said, noting that sectors linked to global capital formation will continue attracting incremental capital. (ANI)
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