The 25-year-old scored 28 goals in 146 La Liga appearances after joining Valencia from Paris St-Germain on an initial loan deal in 2017.
Wolves' need for a striker had become more pressing following an injury to Mexican striker, Raul Jimenez in pre-season.
"We have been monitoring Goncalo for a long time and are very pleased to welcome him," Wolves chairman Jeff Shi said.
