Bank of America analysts predict that gold could hit $4,000 per ounce—an 18% increase from current prices—within the next year, largely due to escalating U.S. fiscal debt.
This year, gold has typically served as a safe haven during uncertain times, experiencing a nearly 30% rise mainly due to heightened global trade tensions and increasing geopolitical risks.
In April, the price of gold soared to a record high of $3,500 as an unprecedented trade war led by the U.S. rattled global markets. Ongoing issues related to U.S.-Ukraine trade have only added to investors’ anxieties.
Interestingly, Bank of America analysts argue that the potential rise to $4,000 might not be as influenced by these events as many believe.
In a memo released recently, the analysts indicated that while gold price fluctuations and geopolitical conflicts can capture attention, they are often not sustainable long-term growth drivers. This perspective follows Israel’s recent airstrikes in Iran.
They noted that the conflict between Israel and Iran has drawn focus away from President Donald Trump’s large tax and spending proposals currently navigating Congress. If approved, these proposals could result in a trillion-dollar deficit in the coming years, raising questions about the U.S. debt’s sustainability and the dollar’s future.
“While the situation could escalate, conflicts rarely provide lasting boosts to gold prices,” they stated. “Thus, the trajectory of U.S. budget negotiations will be crucial. If the budget deficit doesn’t contract, the resulting positive fluctuations in the market could lead to more buyers.”
Derailed
Furthermore, Bank of America analysts highlighted trends among global central banks, which are shifting their reserves away from U.S. assets, like Treasury bonds and dollars, to increase their gold holdings. They estimate that central banks now hold around 18% of U.S. public debt in gold, up from 13% a decade ago.
“This should serve as a caution for U.S. policymakers. Ongoing trade issues and budget deficits may encourage central banks to prioritize gold purchases over U.S. Treasury assets,” they cautioned.
A report from the European Central Bank found that gold has risen in status, surpassing the euro and ranking above the dollar in official reserve assets. By the end of 2024, it’s predicted that gold will constitute 20% of total global holdings, while the dollar remains at 46%.
In line with this, a recent survey conducted by the World Gold Council revealed that many central banks plan to increase their gold reserves alongside their dollar holdings over the next year.
