Bank Of America Sees Gold Hitting $4,000 On U.S. Debt Concerns
Gold, which is widely viewed as a safe haven during times of geopolitical uncertainty, has already risen nearly 30% this year on heightened trade tensions, war, and market turmoil.
In April of this year, the precious metal's price reached an all-time high of just over $3,500 U.S. per ounce as an unprecedented tariff war ignited by America sent financial markets for a loop.
Despite the big run, Bank of America expects gold's price to continue gaining as concerns grow over current U.S. debt levels.
In coming months, Bank of America expects gold's price to hit $4,000 U.S. an ounce as governments, central banks, and investors grow increasingly worried about U.S. debt and deficit spending.
In a note to clients, Bank of America said that wars and geopolitical conflicts typically "aren't long-term growth drivers" for gold's price.
A bigger driver of price action in the yellow metal is U.S. President Donald Trump's sprawling tax-and-spend legislation that has been passed into law.
The bill is expected to add trillions of dollars in deficits in the coming years, raising concerns about the sustainability of U.S. debt and the status of the American dollar as the world's reserve currency.
"If fiscal shortfalls don't decline, the fallout from that plus market volatility may end up attracting more buyers" to gold, wrote Bank of America.
The analysts also pointed to the growing trend of central banks shifting away from U.S. assets such as Treasuries (bonds) and the dollar and holding more gold in their reserves.
Bank of America estimates that central banks' gold holdings represent about 18% of the outstanding U.S. public debt, up from 13% a decade ago.
"Ongoing apprehension over trade and U.S. fiscal deficits may well divert more central bank purchases away from U.S. Treasuries to gold," warned the bank's analysts.
A study by the European Central Bank (ECB) revealed that bullion has risen up the ranks of official reserve assets, surpassing the Euro currency and only behind the U.S. dollar.
By the end of 2024, it is estimated that gold accounted for 20% of the world's total reserve holdings. The U.S. dollar, while maintaining a lead at 46%, continues to decline.
A recent survey by the World Gold Council found that most central banks expect to accumulate more gold and less U.S. dollars over the next 12 months.
BAC stock has risen 4% this year to trade at $46.03 U.S. per share.
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