BofA sees $4,000 gold price on US debt, not war

Analysts at Bank of America see gold prices reaching $4,000 an oz. — an 18% jump above current levels — within the next year due to a ballooning U.S. fiscal debt.

Gold — traditionally viewed as a safe haven during times of uncertainty — has risen by nearly 30% this year, driven by high global trade tensions and rising geopolitical risks.

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In April, the yellow metal soared to an all-time high of $3,500 as an unprecedented tariff war ignited by the U.S. rocked the global markets. A dragged-out U.S.-Ukraine deal also did little to assuage investor concerns.

Contrary to popular opinion, another potential rally to $4,000 may have less to do with these factors, but more to do with U.S. debt, BofA analysts say.

In a note published Friday, the analysts explained that wars and geopolitical conflicts typically “aren’t long-term growth drivers” for gold prices, pointing to the 2% dip in the metal’s prices since Israel began its airstrikes on Iran a week ago.

Trillions in debt

According to the bank’s analysts, the Israel-Iran conflict has drawn attention away from U.S. President Donald Trump’s sprawling tax-and-spending bill that’s making its way through Congress. If passed, the bill is expected to add trillions of dollars in deficits in the coming years, raising concerns about the sustainability of U.S. debts and the future status of the dollar.

“While the war between Israel and Iran can always escalate, conflicts are not usually a sustained bullish price driver,” they wrote. “As such, the trajectory of the US budget negotiations will be critical, and if fiscal shortfalls don’t decline, the fallout from that plus market volatility may end up attracting more buyers.”

De-dollarization

The BofA analysts also pointed to the growing trend of global central banks shifting away from U.S. assets (Treasuries and dollar) in their reserves and holding more gold. They estimate that central banks’ gold holdings represent about 18% of the outstanding U.S. public debt, up from 13% a decade ago.

“That tally should be a warning for U.S. policymakers. Ongoing apprehension over trade and U.S. fiscal deficits may well divert more central bank purchases away from U.S. Treasuries to gold.”

A study by the European Central Bank revealed that bullion has risen up the ranks of official reserve assets, surpassing the euro and only behind the dollar. By the end of 2024, it is estimated that gold accounted for 20% of the world’s total reserve holdings. The dollar, while maintaining a lead at 46%, continued to decline.

Similarly, a recent survey by the World Gold Council showed that most central banks are expecting to accumulate more gold and less dollar over the next 12 months.