Bank of America analysts see gold prices reaching $4,000 per ounce—an 18% jump from current levels—within the next year due to rising U.S. fiscal debt.
Gold, traditionally viewed as a safe-haven asset during periods of uncertainty, has risen nearly 30% this year, driven by elevated global trade tensions and growing geopolitical risks.
In April, the yellow metal climbed to an all-time high of $3,500, as an unprecedented tariff war triggered by the United States shook global markets. Even a deal between the United States and Ukraine did little to ease investor concerns.
Contrary to popular opinion, another potential rally to $4,000 may have less to do with these factors and more to do with U.S. debt, BofA analysts say.
In a note published Friday, analysts explained that wars and geopolitical conflicts typically “are not long-term growth drivers” for gold prices, highlighting the 2% decline in the metal’s price since Israel began its airstrikes against Iran a week ago.
According to the bank’s analysts, the Israeli-Iranian conflict has diverted attention from U.S. President Donald Trump’s sprawling tax and spending bill making its way through Congress. If passed, the bill is expected to add trillions of dollars in deficits over the coming years, raising concerns about the sustainability of U.S. debt and the future status of the dollar.
“While the war between Israel and Iran can always escalate, conflicts are usually not a sustained bullish factor,” they wrote. “Therefore, the trajectory of U.S. budget negotiations will be critical, and if fiscal shortfalls do not diminish, the fallout from this beyond market volatility could end up attracting more buyers.”
De-dollarization
BofA analysts also highlighted the growing trend of global central banks moving away from U.S. assets (Treasuries and the dollar) in their reserves and holding more gold. Central bank gold reserves are estimated to represent approximately 18% of outstanding U.S. government debt, compared to 13% ten years ago.
“This count should serve as a warning to U.S. policymakers. Continued apprehension over U.S. trade and fiscal deficits could divert more central bank purchases from U.S. Treasuries to gold,” they warned.
A European Central Bank study revealed that bullion has risen in rank among official reserves, surpassing the euro and trailing only the dollar. By the end of 2024, gold is estimated to represent 20% of the world’s total reserves. The dollar, while maintaining a 46% lead, has continued to decline.
Similarly, a recent survey by the World Gold Council showed that most central banks plan to accumulate more gold and fewer dollars over the next 12 months.