The world is watching gold's massive rally as the price continues to push past $4,000 an ounce. However, one of the first analysts to call it a milestone is now warning investors to proceed with caution.

While gold's upward momentum is impressive, Bernard Dahdah, precious metals analyst at Natixis, warned that gold can also experience significant volatility when market sentiment shifts.



Dahdah said he is neutral on gold until 2026, adding that the next two to three months could be volatile.

“ We believe that gold prices may face downside risks in the short term (next two to three months), but upside risks are more likely in 2026,” he said. “ We may see selling pressure on the back of improved profits, leveraged investors needing to close positions, and to a lesser extent, some profit-taking. We have seen this several times in the past, leading to gold prices falling 5% to 10% in a few days , such as in August-September 2011 (debt ceiling), the 2020 coronavirus crisis, and the March 2022 Russia-Ukraine conflict.”

Dahdah said gold prices could also struggle against the backdrop of shifting geopolitical uncertainty if the U.S. Congress passes a new funding bill to end the current government shutdown, which is entering its second week.

Some analysts have noted that a prolonged government shutdown would be needed to create an economic environment that would provide further support for gold. Dahdah noted that the gold market fell after the resolution of the previous two government shutdowns under Presidents Obama and Trump, which lasted 16 and 35 days, respectively.

Dahdah said that the two major factors driving the rise in gold prices are still the shift in U.S. monetary policy and U.S. bond market sentiment.

While the Fed is expected to cut interest rates at its next two meetings, Dahdah said there remains considerable uncertainty about monetary policy through 2026, especially as President Trump and his administration continue to pressure the Fed to cut rates aggressively even if inflation remains high.

Dahdah noted that as interest rates fall, concerns about stagflation and recession caused by Trump's continued tariffs and global trade tensions are prompting international investors to diversify away from U.S. bonds.

“In the two weeks following Liberation Day, we saw $150 billion in outflows from U.S. money market funds (MMFs), the worst outflows since the financial crisis, which helped to push up gold prices to some extent,” he said.

Dahdah added that due to the sheer size of the U.S. money market, even a small diversification investment could significantly boost gold prices.

“If there is a 1% outflow from U.S. MMFs, with 20% going into physical gold and the rest into futures, then the gold price could rise by around 10%,” he said.

While Dahdah believes gold's fundamentals are solid, he cautioned that rising prices could dampen physical consumption, particularly in the global jewelry market. Natixis forecasts gold prices to average around $3,760 per ounce next year. Dahdah also said rising gold prices could slow central bank demand growth through 2026.

“At current price levels, we are seeing demand destruction for gold jewelry and a slowdown in central bank gold purchases. These two sources of demand together account for about 70% of global gold demand,” he said.

At 15:29 Beijing time, spot gold was trading at $4027.63 per ounce.