Why an analyst sees the record-setting gold rally headed for a 38% crash in coming years

• Record-high gold prices could see a steep correction in the coming years, according to one analyst.
• There are long-term trends that could push bullion back to $1,820, Morningstar's Jon Mills says.
• That implies a 38% decline for the metal from current levels.

Gold has become a surprise winner of the Trump trade as investors seek shelter amid the policy chaos, but there are longer-term trends that threaten to drag the metal back down to earth.

Jon Mills is an analyst at Morningstar with a particularly downbeat forecast for gold prices. While the rest of Wall Street is setting higher forecasts for bullion, he thinks that gold—which reached a fresh record-high this week—could ultimately tumble to $1,820 an ounce over the next five years.

That implies a 38% drop from its record high of over $3,000 and would wipe out its gains over the past 12 months.

Gold prices traded around $3,080 an ounce on Friday, a fresh all-time high.

Prices for the yellow metal have soared this year due to factors including geopolitical uncertainty, a more challenged outlook for the US economy, and expectations for higher inflation, which has piqued investor interest in safe-haven assets.

The restlessness in markets has made gold a standout asset in the opening months of Trump's term.

But Mills believes that more secular pressures will weigh on gold in the coming years. He told Business Insider he sees three reasons prices will head lower over the long term.

1. Supply in the market will grow

High gold prices have encouraged producers to keep mining more gold, but higher supply will add downward pressure on prices in the coming years, Mills said.

According to data from the World Gold Council, gold mining has become increasingly lucrative in recent years. Average profit margins for gold miners hit $950 an ounce in the second quarter of 2024, the most profitable mining period since 2012.

According to the group's analysis, the above-ground stock of gold also swelled to 216,265 tonnes in 2024, up 9% in five years.

Mills added that more gold is expected to be recycled in the coming years, which will also increase supply.

"Every person and their dog is trying to open a gold mine because it's been profitable," Mills said, pointing to Australia in particular as one of the world's largest producers of gold. "I think you'll see supply increase based on that.

2. Demand for gold will ebb

Central banks and investors have been more interested in buying gold this year as a way of diversifying reserves and to seej shelter from the macro uncertainty.

Global central banks purchased a net 1,045 tons of gold through 2024, the third straight year of purchases over 1,000 tons.

Meanwhile, on the investor side, gold funds are the most popular they've been in years. Inflows into regional gold ETFs reached $9.4 billion in February, the highest inflow in nearly three years, World Gold Council data shows.

But there are signs that the world's appetite for gold is starting to wane. In a survey last year conducted by the WGC, 71% of central banks said they expected their own gold holdings to remain the same or decrease in the coming 12 months.

Investor appetite is also likely to dip, Mills said, given that concerns about the economy are typically short-term factors that influence gold prices. He pointed to gold's brief price spike in 2020, when the pandemic fueled unprecedented concern about the economy. Prices, though, quickly fell after that and didn't climb back to their prior peak until late 2023.

"You need to be careful not to project all these bullish tailwinds on gold," Mills said of record-high gold prices. "If you look at the gold price over the past 25, 30 years, you can see that it goes up a lot, gone up a lot, and then it came back a bit."

"On the demand side you've got all these positive sources of demand now, which I'm not too sure long-term," he added.

3. There are signs a peak is near

Activity in the gold industry is following a familiar pattern that has historically indicated prices are nearing a top, Mills said.

For one, M&A activity is booming, which tends to be the case at the market's peak. Dealmaking in the gold industry climbed 32% year-over-year in 2024, according to data from S&P Global Market Intelligence.

There's also been a proliferation of gold-based funds recently, which has been the case in prior peaks, Mills said.

"Long story short, you have all these things that are pushing up the gold price," Mills told BI. "I think you have to be careful not to project current spot prices unto eternity or over the long term."

Many Wall Street forecasters expect gold prices to keep climbing in the near term. This week, Bank of America raised its gold forecast over the next two years to $3,500 an ounce, assuming investment in the metal increases by 10%. Goldman Sachs also raised its forecast, predicting that gold could rise to $3,300 by the end of the year.