Will Gold Continue to Shine? Bank of America: Gold Prices Will Rise to $4,000, and the "Big and Beautiful" Bill is the Key!

As the Israel-Iran conflict intensifies, the US has also become involved. Analysts from Bank of America (BofA) pointed out in their latest report that while gold is typically seen as a safe-haven asset during periods of global turmoil, wars and geopolitical conflicts are generally not long-term drivers of gold price growth.

In fact, since Israel began its air strikes on Iran, gold prices have fallen by 2% within a week. Currently, international gold prices are hovering around $3,400 per ounce. BofA analysts predict that gold prices will reach $4,000 per ounce next year, marking an increase of approximately 19% from current levels.

They wrote, "Although the war between Israel and Iran could always escalate, conflicts typically do not sustainably drive gold prices higher. Therefore, the trajectory of US budget negotiations will be crucial. If the fiscal deficit does not decline, its consequences, combined with market volatility, may ultimately attract more buyers."

However, for now, the market does not seem overly reliant on gold. BofA estimates that investors have allocated only 3.5% of their portfolios to gold.

Recently, aside from the Israel-Iran conflict, the market's greatest concern has undoubtedly been Trump's "Big and Beautiful" bill. Despite key differences between the House and Senate versions before it becomes law, the bill's fiscal impact is expected to increase the US deficit by several trillion dollars in the coming years.

A more comprehensive analysis released this week by the US nonpartisan Congressional Budget Office (CBO) shows that while President Trump's proposed sweeping tax cuts and spending bill would boost economic output, it would still lead to a $2.8 trillion increase in the federal deficit over the next 10 years.

BofA analysts warned that regardless of how Congress ultimately revises the budget bill, the deficit will remain high.

"Therefore, regardless of the outcome of Senate negotiations, market concerns about fiscal sustainability are unlikely to abate. Interest rate volatility and a weaker US dollar should continue to support gold, especially if the US Treasury or the US Fed are ultimately forced to intervene and support the market," they wrote.

The "Big and Beautiful" bill, which passed the House of Representatives in May this year, is a core agenda of the Trump administration, covering a range of policies including taxes, border control, and artificial intelligence. The bill has raised concerns about the sustainability of US debt, as well as global concerns about "the demand for the massive amount of US Treasuries to be issued" to cover all deficits.

Data shows that since the end of March alone, global central banks have sold off $48 billion in US Treasuries. Meanwhile, central banks around the world continue to buy gold, continuing a trend that began several years ago.

A recent survey by the World Gold Council found that geopolitical uncertainty and potential trade conflicts are the main reasons why central banks in emerging economies are turning to gold at a much faster pace than those in developed economies.

Bank of America now estimates that central banks' gold holdings currently amount to about 18% of the US's outstanding public debt, up from 13% a decade ago.

"This figure should serve as a wake-up call for US policymakers. Ongoing concerns about trade and the US fiscal deficit are likely to lead central banks to buy more gold rather than US Treasuries, " analysts warned.