Analysts at Bank of America pointed out that despite the escalation of the conflict between Israel and Iran, wars and geopolitical conflicts are usually not the long-term driving forces for Gold prices.
The analysts expect that Gold prices will reach 4,000 dollars per ounce next year, an increase of about 19% from current levels. They emphasized that the trajectory of U.S. budget negotiations will be crucial.
According to a report from the Financial Associated Press on June 22 (Editor: Huang Junzhi), as the conflict between Israel and Iran intensifies, the United States is also drawn into it. Analysts at Bank of America pointed out in their latest report that, indeed, during periods of global turmoil, Gold is often viewed asSafe haven Assets, but wars and geopolitical conflicts are usually not the long-term driving forces for Gold prices.
In fact, since Israel started airstrikes on Iran, Gold prices have dropped by 2% within a week. Currently, international Gold prices are hovering around 3,400 dollars per ounce. Analysts at Bank of America expect that Gold prices will reach 4,000 dollars per ounce next year, an increase of about 19% from current levels.
They wrote: "Although the war between Israel and Iran will always escalate, conflicts typically do not sustain upward momentum for Gold prices. Therefore, the trajectory of U.S. budget negotiations will be crucial; if the fiscal deficit does not decrease, the consequences, along with market volatility, may ultimately attract more buyers."
However, as of now, the market does not seem to be overly reliant on Gold. Bank of America estimates that investors have only allocated 3.5% of Gold in their portfolios.
Recently, aside from the conflict with Iran, the market's greatest concern is undoubtedly Trump's "big and beautiful" bill. Although there are key differences between the versions in the House and Senate before becoming law, the fiscal impact of the bill is expected to increase the United States' deficit by several trillion dollars in the coming years.
This week, the nonpartisan Congressional Budget Office (CBO) of the United States released a more comprehensive analysis showing that although the comprehensive tax cuts and spending bill pushed by President Trump will boost economic output, it will still lead to an increase in the federal deficit by 2.8 trillion dollars over the next 10 years.
Bank of America Analysts warned that no matter how Congress ultimately rewrites the budget bill, the deficit will remain at a high level.
"Therefore, regardless of the outcome of the Senate negotiations, concerns about fiscal sustainability are unlikely to abate. Interest rate fluctuations and a weakening dollar should continue to support Gold, especially if the U.S. Treasury or the Federal Reserve is ultimately forced to intervene and support the market," they wrote.
"The 'big and beautiful' bill was passed by the House in May this year and is a core agenda of the Trump administration, covering a range of policies including taxation, border control, and artificial intelligence. This bill has raised concerns about the sustainability of U.S. debt and global worries about 'the upcoming issuance of a large amount of U.S. Treasury bonds' to cover all deficits."
Data shows that since the end of March alone, central banks around the world have sold off 48 billion dollars of U.S. Treasury bonds. Meanwhile, central banks are still continuing to purchase Gold, continuing a trend that began several years ago.
A recent survey by the World Gold Council found that geopolitical uncertainty and potential trade conflicts are the main reasons why central banks in emerging economies are turning to Gold at a far faster rate than in developed economies.
Bank of America now estimates that central banks' Gold holdings currently represent about 18% of U.S. unpaid public debt, up from 13% a decade ago.
This figure should ring alarm bells for American policymakers. Ongoing concerns about trade and the U.S. budget deficit are likely to lead to central banks purchasing more Gold rather than U.S. Treasury bonds, Analysts warn.
Editor/Jeffy
