Escalating tensions in the Middle East over the weekend, particularly between Iran and Israel, have fueled speculation that the Federal Reserve may further delay interest rate cuts. Analysts warn that a prolonged conflict could drive oil prices higher, exacerbating inflationary pressures and forcing the Fed to maintain its restrictive monetary policy for longer.
However, Bank of America (BofA) remains bullish on gold, maintaining its $4,000/oz price target over the next 12 months, even if the Fed holds rates steady. The bank argues that structural factors—such as unsustainable U.S. debt levels and shifting central bank reserve strategies—will ultimately propel gold higher, overshadowing short-term geopolitical risks.
Spot gold briefly dipped below $3,400/oz on Monday as the market assessed the immediate impact of the Middle East conflict. According to BofA’s commodity team, led by Michael Widmer, war-driven rallies in gold tend to be fleeting unless they trigger broader macroeconomic shocks.
“Historically, geopolitical events alone rarely sustain gold’s upward momentum unless they disrupt critical supply chains, particularly oil,” Widmer noted. “While the Iran-Israel conflict raises risks, it hasn’t yet significantly impacted global crude supplies.”
Natasha Kaneva, JPMorgan’s chief commodities strategist, warned that an escalation—such as a blockade of the Strait of Hormuz—could send oil prices skyrocketing to $120-$130/barrel, reigniting inflation concerns. Yet, BofA believes gold’s long-term trajectory hinges more on fiscal and monetary trends than temporary risk-off sentiment.
The bigger concern, according to BofA, is the unchecked expansion of U.S. debt. Congress is currently debating new tax cuts that could add trillions to the deficit, pushing national debt beyond $35 trillion.
“Market anxiety over fiscal sustainability won’t fade, regardless of Fed policy,” the report stated. “Central banks are already responding by accelerating gold purchases, which now account for 18% of outstanding U.S. public debt—up from 13% a decade ago. This ‘de-dollarization’ trend is a clear warning to policymakers.”
Gold currently makes up 3.5% of global investment portfolios—below the 2011 peak—suggesting further allocation increases are possible. BofA expects gold to consolidate between $3,000 and $3,500/oz in the near term before climbing toward $4,000, especially if the Fed or Treasury intervenes to stabilize markets.
The precious metals rally has broadened, with silver surging and platinum gaining momentum. BofA reiterated its $40/oz target for silver by Q4 2025, citing persistent supply deficits and recovering ETF inflows.
“Silver’s underperformance has reversed as the gold-silver ratio normalized,” analysts wrote. “If trade tensions ease and global growth picks up, silver could see another leg higher.”
