Gold's recent struggle to maintain support around $4,000 an ounce has raised concerns among investors, but State Street Investment Management remains cautiously optimistic about its long-term prospects. The firm's latest Monthly Gold Monitor forecasts gold prices to trade between $4,750 and $5,500 by the end of the first quarter of 2027, though it has reduced the probability of this scenario to 60% from 70%. The adjustment reflects growing uncertainty surrounding the Federal Reserve's monetary policy and the impact of higher interest rates and a stronger U.S. dollar on the non-yielding precious metal.
Aakash Doshi, Head of Gold Strategy at State Street, highlights persistent inflation, rising bond yields, and a more hawkish Federal Reserve as key challenges. Despite these headwinds, the firm maintains a longer-term outlook that gold could reach $5,000 by June 2027. However, the path to higher prices has become more difficult, with a 35% probability now assigned to a bearish scenario where gold remains within a range of $4,000 to $4,750 over the next six to nine months.
The report notes that gold prices fell 6.3% in September as the Federal Reserve raised interest rates by 25 basis points. Markets have since shifted expectations toward additional rate hikes, with a more than 80% chance of a rate hike in December and further hikes expected in the first quarter of 2027. The resulting rise in Treasury yields has pushed the U.S. dollar to a two-month high, increasing the opportunity cost of holding gold.
Despite these challenges, State Street points to the resilience of investment demand, with U.S.-listed gold-backed exchange-traded funds attracting $11.7 billion in inflows during the third quarter, including $3.7 billion in September. The firm suggests that strategic investor allocations continue to view gold as a monetary hedge, alternative-fiat asset, and portfolio diversifier. The report also warns of potential policy mistakes by the Federal Reserve, particularly regarding the economic benefits of artificial intelligence, which could create stagflationary conditions and reinforce gold's appeal as a store of value.