Wall Street firms are adjusting their views on gold downward after the unexpectedly hawkish tone of the new Federal Reserve Chairman Kevin Warsh. “After the meeting, there is a much higher risk that the Fed will hike this year,” Bank of America commodity strategists led by Michael Widmer wrote Friday, referring to the Fed policy meeting last week. “This will in all likelihood make it harder for gold to push meaningfully higher near-term.” Bank of America’s previous $6,000 target for an ounce of gold looks unlikely now, because the inflation backdrop remains “uncomfortable,” likely driving tighter monetary policy, Widmer said. Weaker gold prices have been closely correlated with an increased probability of rate hikes by yearend, the strategist said. “Or put a different way: the shift from ‘inflationary cuts’ to tighter monetary policy reduces gold upside by around 50%, all else equal.” Changed outlooks Regarded as a safe-haven asset that holds a store of value, investors gravitate toward gold at times of market uncertainty in hopes that it will act as a hedge against inflation. But because the yellow metal doesn’t pay a yield, the metal is also very sensitive to expectations for long-term, real interest rates. Bank of America isn’t alone in rethinking its gold view. Other Wall Street firms also changed their gold outlook t o accommodate the hawkish tone of the Federal Reserve in the wake of last week’s policy meeting, which left the fed funds rate unchanged at 3.50% to 3.75%. UBS strategist Joni Teves said rising yields coupled with continued anticipation of future rate hikes is pressuring gold. “Downside risks to our views have increased materially,” she wrote Monday. “Timelines of our expected price forecast profile may be pushed out, with greater uncertainty on how long the current consolidation might extend.” Deutsche Bank said Fed repricing and resilient U.S. macroeconomic data have combined to push gold lower. Under the bank’s baseline scenario, gold might fall to $3,800 an ounce if there were three to four Fed rate hikes, according to Michael Hsueh, the precious metals strategist. Gold futures were selling for about $4,207 an ounce late in the day Monday. Hsueh said that gold prices became more firmly wedded to the outlook for Fed rate policy starting around the the middle of May, and less tied to the correlation to energy prices that had prevailed since the start of the Iran war. Amy Gower, a commodity strategist at Morgan Stanley said that while de-escalation in the Middle East has supported gold, a more hawkish Fed brings fresh challenges, especially for ETF buying. ETF flows are more sensitive to changes in rate expectations, real yields and the dollar and, with a more hawkish Fed, Gower believes Morgan Stanley’s previous forecast of $5,200 an ounce for gold now appears “more challenging,” especially since it depended on renewed ETF buying and evidence that lower oil would feed into the interest rate outlook. “A hawkish hold [by the Fed] raises the opportunity cost of holding gold and is likely to matter most through ETF flows,” Gower said. Goldman Sachs also reviewed its gold recommendation in light of Fed Chairman Kevin Warsh’s first policy meeting last week. Goldman cut its gold price target for the end of this year to $4,900 an ounce from a previous $5,400 last Thursday, and sees no rate cuts from the U.S. central bank before the second half of 2027. “Our gold price views remain structurally constructive but tactically cautious with near-term downside risk and medium-term upside risk,” Goldman commodity researchers Lina Thomas and Daan Struyven wrote.
