BofA expects gold to struggle above $4,000 during the next three months

what happened

Seeking Alpha reports that Bank of America kept a cautious view on gold in a new report issued Monday. Although investment demand has remained steady, the bank expects weak physical buying to prevent the metal from staying above $4,000 an ounce during the coming three months.

ETF demand has been positive for the past two months, but BofA analysts say that flow is not enough to support the market. If prices weaken, investors could begin unwinding holdings, creating additional selling pressure. The bank also warns that renewed escalation in the Middle East could lead central banks to restart sales. About 90% of the increase in the value of their gold holdings came from valuation gains rather than purchases, BofA said.

The bank believes gold needs clearer signals from the Federal Reserve before it can establish a floor and return to its longer-term advance. A shift toward easier Fed policy would provide the stronger catalyst, while renewed concern about currency debasement could also restore bullish interest.

Gold futures moved lower on Monday after reaching a one-week peak, as the dollar strengthened and oil prices rose. Investors are awaiting U.S. CPI data on Wednesday, PPI on Thursday and remarks from Fed Chairman Warsh. Kotak Neo analyst Kaynat Chainwala said the combination of a stronger dollar and higher oil prices increased concern that energy-related inflation could keep the Fed inclined toward tighter policy. Front-month Comex gold for October delivery fell 0.6% to $4,165.80 an ounce, while front-month October silver lost 0.9% to $60.141 an ounce.

why it matters

The report puts weak physical demand and possible official-sector selling against monetary-policy expectations. This week’s inflation figures and Fed commentary may therefore be important for how traders assess gold’s near-term support.

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