Gold Prices at Risk of Sliding Below $4,000 as Iran War Looms

Gold prices have been resilient in the face of rising bond yields and interest rate expectations, but analysts at Bank of America warn that they could slide below $4,000 in Q4. The bank maintains its bullish 2027 forecast but notes that it's not without risks. If oil were to spike to $150/bbl due to extended Middle East tensions, which is not their base case, gold would average $3,500/oz in 2027.

The Iran war poses a significant risk to gold beyond inflation fears. The bank warns of the possibility that higher energy prices could force central banks to sell their gold to support their economies and currencies.

Despite this, gold futures edged higher after data showed U.S. inflation rose less than expected in August, reducing bets for a Federal Reserve rate hike in October. Markets are now pricing in a 31% chance of an October rate hike, down from 45% before the release and 69% a week ago.

Limiting further gains in gold is the benchmark 10-year U.S. Treasury yield, which slipped after rising for seven straight sessions, raising the opportunity cost of holding gold. A stronger dollar also made greenback-priced bullion more expensive for holders of other currencies.