Gold selloff opens door to investors: BofA

Gold’s recent selloff has opened up a new opportunity for investors, though patience may be required for the precious metal to weather the storm created by the current macro environment first, according to Bank of America.

In a note published this week, analysts at BofA tamed its near-term outlook on gold, citing growing expectations that the Federal Reserve will hike interest rates to combat the inflation fallout from the U.S.-Iran war. The bank is backing away from a price target of $6,000 an oz. by next spring. 

That outlook was built on the premise that more rate cuts were coming this year. The anticipation of the Fed’s monetary easing had already sent gold prices soaring through most of 2025 and then to a record high in January. However, the Iran war has derailed the rally, as inflationary pressures from the ensuing global energy crisis forced global central banks to reconfigure their policies.

“The shift away from inflationary cuts toward tighter policy is a headwind for gold,” BofA analysts wrote in the note.

Losses today 

On Wednesday, gold declined by another 2.5% to below the key $4,000 an oz. level for the first time since November, as it continues to get dragged down by the possibility of U.S. rate hikes.

Long-term gain

The yellow metal yields no interest and therefore loses appeal when rates are high. In the US, market participants currently see a 70% chance of a rate hike by September, and a near-certain chance of a December hike, according to the CME FedWatch Tool.

Nevertheless, BofA — like its peers including UBS and Goldman Sachs — remain optimistic on gold’s performance in the long run, with persistent U.S. budget deficits and de-dollarization trends supporting the bull case.

Citing a recent central bank survey, the bank noted that nearly three-quarters of these institutions are expecting “moderate or significantly lower” dollar holdings within global reserves over the next five years, implying that more central-bank purchases are in the offing.

For retail investors, the analysts pointed out that gold investments currently account for only about 5.5% of investors’ total equity and fixed-income markets, which they said have more room to grow. However, for the time being, gold must price out the rate hikes before demand picks up, they acknowledged.

Miners undervalued

In addition, the bank also highlighted opportunities in gold mining equities in terms of their valuation against the metal’s price.

Using a price-to-net asset value approach, BofA found that companies are on average pricing gold at $3,354 an oz., marking a 19% discount to spot at the time of publication.

However, the company noted that the spread within the sector is high, with Wheaton Precious Metals (NYSE: WPM) having the highest implied gold price  of the companies under its coverage at $4,395 an oz., and Franco-Nevada (NYSE: FNV) the lowest at $2,416 an ounce.