Has the Worst of Gold Passed? Wells Fargo: Risk-Reward Ratio Reverses After 30% Pullback, $500 Downside vs $1,500 Upside

Over recent months, international gold prices have faced persistent downward pressure, driven by escalating Middle East tensions that boosted oil prices, heightened market bets that the Federal Reserve (Fed) will be forced to tighten policy, and rising U.S. Treasury yields, which have increased the opportunity cost of holding non-yielding assets like gold.

Spot gold prices have fallen over 20% from their historical high in January 2026, closing Tuesday (21st) at approximately $4,078 per ounce. Today, during Asian trading hours, the price found support near the $4,000 level as bargain hunters stepped in.

According to a report by Kitco News, Sameer Samana, Wells Fargo’s global equity and real assets strategy head, said the risk-reward structure of gold has materially reversed after its pullback from highs. "Downside space is converging, while long-term upside potential remains attractive."

Samana believes that key risks such as elevated oil prices and two to three additional Fed rate hikes have largely been priced into current gold levels. "If Fed funds futures have priced in two to three hikes, gold has priced them in too. The real discussion isn’t whether there are rate hike concerns—it’s about the probability of more than two to three hikes."

In his assessment, U.S. inflation isn’t severe enough to warrant aggressive further tightening.

Samana does not rule out continued weakness in gold prices over the short term. Technically, he admits it's "difficult to say gold has bottomed," with a near-term risk of a drop to $3,500, while resistance exists between $4,500 and $4,900 due to technical overhead from profit-taking.

However, he argues that rising oil prices and higher interest rates will ultimately slow the economy, forcing central banks and treasuries back toward easing. "After the dust settles, we’ll likely return to roughly the same situation."

Samana also outlined a clear asymmetric return profile: a downside of about $500 versus an upside of $1,500, calling it "a very attractive risk-reward ratio for investors building portfolios."

The Wells Fargo Investment Institute (WFII) reiterated its long-term bullish stance on gold in its latest "Chart of the Week," noting that the recent pullback stems from profit-taking and tightening expectations. However, structural supports—such as ongoing central bank gold buying, reserve diversification, and geopolitical uncertainty—remain unchanged. WFII forecasts gold could reach $5,300–$5,500 by end-2024 and rise further to $5,800–$6,000 by end-2027.

Samana also pointed out that gold declined about 15% during the 2020 recession and the 2018 tightening cycle, and around 34% in 2008. Long bear markets in gold are typically multi-year gradual declines rather than collapses, meaning "much of the pain has already been priced in." Gold’s diversification value becomes particularly prominent when both stocks and bonds are under pressure.