Gold price target of $6,600 is now reasonable, says Jefferies’ Chris Wood. Here’s why

In his latest GREED & fear report, Wood reaffirmed his bullish stance on gold, setting a new target of $6,600 per ounce. This projection is derived from gold achieving the same relative value to US disposable income per capita as its 1980 peak, suggesting substantial upside from the current $3,670. Despite a 'sell on the news' reaction to the Fed's 25 bps rate cut, Wood maintains a significant gold allocation in model portfolios, driven by expectations of monetary easing and geopolitical tensions, with market focus now shifting to Treasury bond reactions.

Analysis

Christopher Wood's latest GREED & fear report reaffirms a strongly bullish conviction on gold, establishing a new price target of $6,600 per ounce. This target is derived from a specific valuation metric: for gold to represent the same proportion of US per capita disposable income as it did at its 1980 peak (9.9%), its price must rise from the current $3,670 to $6,571. At present, the metal constitutes just 5.6% of today's $66,100 per capita income. This view is consistent with a long-term strategy that has included a minimum 40% gold bullion weighting in a model portfolio since 2002, a figure trimmed from 50% in late 2020 to introduce Bitcoin. The metal's significant performance, with a 39% gain year-to-date, is attributed to expectations of Federal Reserve monetary easing, persistent geopolitical tensions, and robust central bank purchasing. Despite a recent modest pullback following a 25 basis point Fed rate cut, described as a 'sell on the news' reaction, the underlying bullish drivers are presented as intact, with market focus now shifting to the US Treasury bond market's reaction to renewed monetary easing.

Key Decisions for Investors

• Given the analyst's conviction and a price target suggesting substantial upside, investors may consider gold as a core long-term holding, consistent with the report's model portfolio strategy.
• The valuation framework comparing gold's price to US disposable income per capita provides a quantitative anchor for assessing long-term potential, distinct from short-term market momentum.
• Investors should closely monitor the US Treasury market's response to monetary easing as a key forward-looking indicator for gold's trajectory, while acknowledging the potential for short-term price pullbacks on expected news events.