(Kitco News) - Elevated oil prices continue to drive inflation fears higher, forcing markets to price out rate cuts this year, which is taking its toll on gold prices; however, one bank continues to expect prices to be much higher a year from now.
After leaving interest rates unchanged on Wednesday because of rising inflation pressures, the Federal Reserve said that it was openly debating whether to adjust its monetary policy from an easing bias to a more neutral stance.
This past week, all the major central banks that issued statements said they are adopting a wait-and-see approach to monetary policy because of heightened geopolitical and economic uncertainty.
In their latest note, commodity analysts at Bank of America said that gold could continue to struggle in the near term, but they are maintaining their long-term bullish forecast. The bank said it is maintaining its 12-month, $6,000 price target for gold.
“Gold has hit an air pocket, as the yellow metal and oil have been inversely correlated over inflation concerns and the Fed's reaction function. This apprehension still lingers, but continued uncertainty over US economic policy, including an elevated fiscal deficit and a weak USD, should keep a bid on the metal,” the analysts said.
In its official forecast, Bank of America has increased its 2026 average gold price forecast to $5,093 an ounce, up slightly from its previous average forecast of $4,988 an ounce.
The bullish forecast comes as gold prices look to close their second straight week with a loss. Spot gold last traded at $4,604 an ounce, down nearly 0.5% on the day and more than 2% lower on the week.
At the same time, BofA remains solidly bullish on silver, even as the chaos in the Middle East threatens global economic growth, potentially hurting industrial demand.
BofA now sees silver prices averaging around $85.93 an ounce this year, a nearly 15% increase from the previous average estimate of $75 an ounce.
The analysts said that solar demand remains an important pillar of support for the silver market.
“While silver demand from solar panel manufacturers is declining, this is unlikely to be enough to flip the market into a surplus this year,” the analysts said.
Although the current energy crisis could weigh on growth in the near term, BofA said that it is also creating long-term potential industrial demand for silver and base metals.
“We acknowledge headwinds from the energy disruption and, factoring in revised estimates from our economics team, expect a slowdown in metals demand,” the analysts said. “At the same time, we believe that the ongoing energy crisis will incentivize energy-importing countries to increase investment in the electrification of the economy.”
