Bank of America has become more positive on gold, setting a significantly higher target price for the next year. Currently, the gold price is around $3,330 per ounce, up over 40% in the last 12 months.
Bank of America has predicted that gold prices will reach $4,000 per ounce next year, marking an increase of approximately 20% from current levels.
Gold has been on a tear for the past three years. The price of gold has already increased by 45% this year after rising by more than 20% during the previous two years. Gold returns over the last 10 years have been a staggering 180%.
By now, the factors behind the high demand for gold are known to all. From large gold purchases by central banks throughout the world to increased investor demand, supply-demand factors have caused the gold price to rise steadily in recent years.
This sudden liking for gold has largely been fueled by rising economic uncertainty and the volatile geopolitical situations. Over the last three years, the world has seen armed conflict between Russia and Ukraine, as well as a war between Israel and Iran, where even US had to conduct military operations.
However, Bank of America analysts are not citing the ongoing geopolitical wars as the prime reason for gold to move higher from current levels.
Bank of America (BofA) analysts suggest that while gold is often seen as a haven during global turmoil, wars and geopolitical conflicts are not long-term drivers of gold price growth.
BofA analysts attribute the rationale for gold’s rise from present levels to Trump’s ‘Big and Beautiful’ plan. Despite changes between the House and Senate versions, the bill is expected to substantially increase the US deficit in future years.
President Trump’s proposed sweeping tax cuts and spending bill is likely to boost economic output, but it would still lead to a $2.8 trillion increase in the federal deficit over the next 10 years.
“Therefore, regardless of the outcome of Senate negotiations, market concerns about fiscal sustainability are unlikely to abate. Interest rate volatility and a weaker US dollar should continue to support gold, especially if the US Treasury or the US Fed are ultimately forced to intervene and support the market,” wrote BofA analysts.
US dollar is already down 10% this year, while gold has already overtaken the Euro as the world’s 2nd largest forex reserve asset. Central banks around the world continue to buy gold, continuing a trend that began several years ago. The World Gold Council’s survey indicates that geopolitical uncertainty and potential trade conflicts are driving central banks in emerging economies to rapidly adopt gold.
“This figure should serve as a wake-up call for US policymakers. Ongoing concerns about trade and the US fiscal deficit are likely to lead central banks to buy more gold rather than US Treasuries, ” analysts warned.
As fiscal concerns over US government debt sustainability or deficits rise, investors may seek gold’s safety, driving its price higher.
The average US GDP for fiscal year 2024 was $28.83 trillion, which was less than the U.S. debt of $35.46 trillion. This resulted in a Debt-to-GDP Ratio of 123 percent. Generally, a higher Debt to GDP ratio indicates a government will have greater difficulty in repaying its debt.
As of May 2025, it costs $776 billion to maintain the American debt, which is 16% of the total federal spending in fiscal year 2025.
On the lines of what BofA feels about the US fiscal situation, the World Gold Council shares this view in their statement — The interest rate environment and geopolitical tensions undoubtedly play a significant role in driving the gold price, but they are not the sole factors.
Recently, we believe that fiscal concerns have also had a say. And while there is a strong belief that the US Treasury market will never lose its safe-haven status, a major crisis, while unlikely, is not impossible.
However, the more likely outcome is a series of rolling mini-crises as highly indebted sovereigns like the US are confronted with market-imposed limits on fiscal largesse. This uncertainty and resulting market volatility are likely to give additional support to the gold market.
