Wells Fargo: Gold drops out of the "golden pit," and by the end of the year, it is expected to reach $6,200

Ask AI · Why Is Gold Falling Contrary to Intuition in a Wartime Backdrop?

Source: JIn Ten Data

In its latest global investment strategy report, Bank of America commodity analyst explained that gold’s counterintuitive pullback is due to investors navigating a complex macro environment, where the effects of rising interest rates, a stronger U.S. dollar, and increasing real yields outweigh geopolitical risk.

Bank of America said: “A surge in the dollar, rising U.S. Treasury yields, and pressure on rate-cut expectations have all become powerful headwinds for gold.”

At the time of these remarks, gold is experiencing its longest streak of consecutive declines since 1983. Since hitting a historic peak of $5,600 per ounce at the end of January, gold has fallen by nearly 22%.

Gold had risen briefly at the beginning of the outbreak of war, but as investors recalibrated their interest-rate expectations, and safe-haven capital flowed to support the dollar, gold’s safe-haven buying demand quickly faded.

Bank of America emphasized that rising real yields are especially bad for gold, because they increase the opportunity cost of holding a non-yielding asset.

This dynamic has been amplified by ongoing inflation concerns sparked by higher energy prices. The conflict has pushed oil prices above $100 per barrel, intensifying market worries that the central bank will keep a tight policy stance for a longer period.

Despite the recent weakness in gold prices, Bank of America said it remains firmly bullish on gold’s long-term outlook.

The firm expects that, driven by continued central bank gold purchases and the eventual cooling of U.S. Treasury yields and the dollar, gold prices will reach $6,100 to $6,300 per ounce by the end of 2026.

Analysts also noted that central bank gold purchases are still far above the long-term average level, providing structural support for demand.

Looking ahead, Bank of America expects the war with Iran to have limited impact on the economy. Inflation pressures will eventually ease, and U.S. Treasury yields will fall later this year, removing a key headwind facing gold.

The firm said that, compared with past crises, the United States is currently more capable of absorbing energy shocks due to structural changes, such as the economy being more service-oriented, the U.S. having become a net energy exporter, and the share of household spending devoted to energy declining.

The firm also expects the conflict to last a relatively short time, thereby reducing the risk of inflation continuing to rise.

Broader economic conditions also remain supportive. Bank of America maintains a constructive view on 2026 growth prospects and believes stagflation is not included in its baseline scenario.

In this environment, Bank of America said that gold’s poor recent performance does not mean its safe-haven appeal has disappeared, but should be viewed as a tactical opportunity.

The firm advised investors to build positions gradually using this pullback, and pointed out that as the conflict stabilizes, capital may rotate from energy markets into precious metals.