Why gold is set for valuation ‘well above’ $3,000

As the price of gold surges, underlying fundamentals suggest that the precious metal might be on the verge of sustaining the momentum to trade above $3,000.

Specifically, analysis by Bank of America (NYSE: BAC) strategist Michael Hartnett indicates that in the wake of gold hitting a new high above $2,700, the commodity continues to be influenced by a confluence of macroeconomic factors, including U.S. dollar debasement, Federal Reserve policies, and inflationary concerns.

First on the list is the expected continued Federal Reserve move to cut interest rates. Notably, the yellow metal’s momentum recently received a boost after the Fed implemented a 50-basis-point rate cut. 

As rates decline, the opportunity cost of holding non-yielding assets like gold becomes more attractive. At the same time, a weakened dollar could diminish investors’ purchasing power, leading to greater demand for gold as a hedge against inflation.

Hartnett also reviewed the metal’s long-term price movements, showing notable price jumps during events like the end of the gold standard in 1933 and the 2008 Global Financial Crisis. In this case, he expects gold to sustain the current stemming from the impact of the pandemic. 

Gold’s Bitcoin correlation 

BofA’s outlook also highlighted Bitcoin’s (BTC) price trajectory, noting that a hypothetical surge to $75,000 in the cryptocurrency would validate a parallel move in gold. Both assets are increasingly considered alternatives to fiat currencies and safe-haven investments during financial instability.

“Fed determination to slash real interest rates coming quarters, investors simply need to hedge inflation & threat of US dollar debasement (Bitcoin price all-time high of $75k would corroborate; gold heading well above $3000/oz,” he said. 

Meanwhile, in another investor note on October 16, Bank of America’s commodity analyst Michael Widmer reiterated this outlook, predicting that gold will trade at $3,000 in 2025. 

Widmer stated that this projection is based on gold’s status as the “ultimate perceived safe-haven asset,” citing concerns over fiscal policies and their potential impact on Treasury yields.

“Accompanying the first Fed’s 50bp rate cut, inflation expectations have risen, meaning that 10-year real yields, usually the most significant gold price driver, kept declining through September,” Widmer said.

What next for gold prices

At the same time, with gold hitting new record highs, an analysis by Gold Predictors indicates that the metal remains bullish. The experts noted that gold has broken out of a descending broadening wedge and initiated a strong surge higher. In this case, the next short-term price targets range from $2,750 to $2,780.

However, with most sentiments around gold remaining bullish, some dissenting voices suggest that the rally could signal potential downside for the broader economy. 

For instance, some market players believe the rally might be a precursor to an upcoming black swan event, such as a possible stock market crash. Author Robert Kiyosaki also shared this cautionary view.