The Iran war is weighing on gold through the oil channel: higher crude feeds inflation fears, keeps the Fed on its hiking path and supports the dollar, all of which work against a non-yielding metal. That makes oil the key variable to watch for gold, with any easing of Middle East supply risk likely to help the metal more than escalation would. With physical buying soft and ETF holders potentially exposed if prices slip, the downside could accelerate should the $4,000 area give way. This week’s US CPI and PPI releases and remarks from Fed Chair Warsh are the near-term tests, with hotter readings likely to add to pressure on bullion.
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BofA still believes in gold’s long game, but for now the Iran war is working against the metal, not for it, by keeping oil, inflation and the Fed all pointed the wrong way.
Summary:
Bank of America expects gold to average $4,000 an ounce in the fourth quarter and does not expect prices to hold above that level over the next three months
The bank forecasts an average of around $4,800 in 2027, keeping its long-term bullish view intact
BofA said physical demand remains soft, and its tracker shows combined gold buying by central banks, China and India lower than a year ago
ETF inflows have been positive for two months, but the bank warned that falling prices could trigger liquidation and add to selling pressure
BofA said central banks could resume gold sales as the Middle East conflict escalates
A bottom likely needs an easing in inflation and Iran war concerns, a halt to dollar strength and an end to Fed tightening, the bank said
Bank of America remains cautious on gold in the near term, saying weak physical demand and inflation pressures linked to the Iran war are likely to keep prices from holding above $4,000 an ounce over the next three months.
In a precious metals report published on Monday, BofA’s commodity analysts said they expect gold to average $4,000 an ounce in the fourth quarter before recovering to an average of around $4,800 in 2027. The bank said near-term headwinds will persist until risks from rising oil prices tied to the Iran war ease.
Investment demand has held up better than physical buying. Gold-backed exchange-traded funds have seen positive inflows over the past two months despite persistent inflation, higher bond yields and a stronger US dollar. BofA cautioned, however, that ETF buying alone cannot keep the market afloat and could become a negative, since a further fall in prices could prompt investors to liquidate positions and add to selling pressure.
The bank’s tracker showed combined gold purchases by central banks, China and India running below year-ago levels. BofA said physical markets remain soft, citing feedback from last week’s London Bullion Market Association conference. It also warned that central banks could resume selling as the Middle East conflict escalates again. Official holdings have dipped somewhat, which the bank said was not surprising, since roughly 90% of the recent rise in their value reflected price gains rather than new purchases.
BofA said gold is likely to bottom only once concerns over inflation and the Iran war ease, the dollar stops appreciating and the Federal Reserve ends its tightening cycle. A dovish turn by the Fed would be the most significant driver of a recovery, though renewed fears of currency debasement could also revive bullish momentum.
Gold turned lower on Monday after touching a one-week high, pressured by a firmer dollar and higher oil prices. One analyst said the combination reinforced concerns that persistent energy-driven inflation could keep the Fed on a hawkish path.
Markets will look to this week’s US consumer price index on Wednesday and producer price index on Thursday, along with comments from Fed Chair Warsh, for clues on the rate outlook. Hotter inflation readings would support BofA’s view that gold’s next leg higher must wait until the Fed signals it has finished tightening.
This article was written by Eamonn Sheridan at investinglive.com.
