Gold Prices May Plunge Below $4,000 This Quarter Amid Energy Headwinds

Gold prices have been able to withstand rising bond yields and interest rate expectations, but one bank believes the current headwinds will eventually take their toll. Bank of America's commodity analysts have been some of the most bullish in the market for the past two years, predicting gold would hit $5,000 an ounce. However, their conviction is waning as energy prices continue to fuel inflation fears.

The bank's latest precious metals outlook maintains its 2027 forecast but notes that it's not without risks. If oil were to spike to $150 per barrel due to extended Middle East tensions, gold would average $3,500 an ounce in 2027, the analysts said.

The bank sees gold prices falling to $3,750 an ounce in the fourth quarter as energy prices remain elevated. The analysts warn that current market positioning poses a significant risk for gold in this environment of high uncertainty. If there's no resolution to the conflict in the Middle East and investors quickly liquidate their positions, gold could drop lower relatively quickly.

Investment demand has picked up and remains resilient, but it only supports prices around $4,000 an ounce. The analysts say that investor demand would need to accelerate for gold prices to reach $5,000 an ounce, which looks unrealistic given the current situation.