Why Bank of America Still Sees Gold at $6,000 Despite Rate Hike Risks and Global Turmoil

Bank of America suggests gold could potentially reach $6,000, but not in the near term, due to significant headwinds from the Federal Reserve’s tightening monetary policy. The bank was previously optimistic during gold’s rally last year, expecting prices to hit $6,000 by spring. However, a recent correction has led its metals research team, led by Michael Widmer, to revise the short-term forecast.

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The $6,000 target now appears unlikely in the near future. Nevertheless, the ongoing macroeconomic situation in the U.S.—including high deficits, lack of fiscal consolidation, and subsequent financing needs—supports gold’s long-term growth potential. Widmer explained that changing expectations for U.S. monetary policy remain the biggest short-term obstacle. Early this year, markets anticipated rate cuts, but the Iran conflict triggered a global energy crisis, intensifying inflationary pressures. Consequently, markets are pricing in rate hikes by year-end, with FedWatch data showing over a 70% probability of hikes by September. This shift from disinflation to tighter policy, while holding other factors constant, reduces gold’s growth potential by about 50%. Bank of America also noted that even a durable peace agreement is unlikely to ease inflation soon. Geopolitical fragmentation strains supply chains and raises producer prices. Services inflation has consistently exceeded targets, though goods deflation helped the Fed achieve price stability.

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Post-COVID, core goods inflation spiked, and Trump tariffs added further pressure. Meanwhile, declining housing inflation helped control core inflation, but this support may weaken. Although persistent inflation forces the Fed to maintain tight policy, Bank of America sees structural factors supporting gold. U.S. economic policy remains unorthodox, with a budget deficit around 6% of GDP and reduced foreign holdings of Treasury bonds.

A recent central bank gold survey found that 74% of respondents expect a moderate to significant decline in dollar reserves globally over the next five years. Until this changes, gold has further growth potential despite short-term hurdles. Widmer’s team also sees potential demand from retail investors. Gold needs the market to price in rate hikes again; if so, investment demand could drive further gains. Currently, investments in physical and paper gold represent about 5.5% of total equity and bond markets, leaving room for investors to shift from a 60:40 portfolio to a 60:20:20 allocation.