• Gold surged to historic highs but recently fell below $4,000 per ounce.
  • Bank of America updated its gold outlook following the drop.
  • Gold prices have rallied on macroeconomic uncertainty, central bank buying, and portfolio underweighting in 2025.

After surging over 50% year to date to all-time highs near $4,400 per ounce, the precious metal has lost luster recently.

Gold prices sank 3.5% last week after a 6% tumble on Oct. 21, and selling continued into this week. On Oct. 28, gold undercut $4,000 per ounce, increasing concern among gold bugs that the metal’s rip-roaring rally is ending.

Annual gold returns since 2020: 

Gold bug dip buyers did indeed show up, easing losses, but the yellow metal still finished the week down 3.5% — hardly reassuring.

  • 2025: 52.9%
  • 2024: 27.4%
  • 2023: 12.2%
  • 2022: 1.4%
  • 2021: -6.1%
  • 2020: 24.0%

The drop below $4,000 on Tuesday morning led some investors to ‘buy the dip’, lifting prices. However, whether that dip buying continues remains to be seen, and durable gains for gold investors will require more than day traders.

Long-term holders will need to continue supporting gold demand by buying exchange-traded funds, and central banks will need to keep buying to diversify away from the U.S. Dollar.

To help cut through the noise, Bank of America recently updated its gold forecast to handicap what could happen next to prices.

Gold rally fueled by lower yields, Dollar decline

The US economy may be running on fumes, given recent job market data and a return of budget busting inflation.

Bank of America updated its gold price forecast after its recent drop.

Naowarat/Shutterstock

Real gross domestic product, or GDP, grew 1.6% in the first half of 2025, below its 2.8% growth in 2024. Many Wall Street economists suggest cracks under the surface suggest an economy much weaker than the topline GDP numbers.

The Washington, D.C. shutdown has put the kibosh on the September jobs data, but August unemployment of 4.3% was the highest since 2021. Challenger, Gray, and Christmas’ data show that employers have laid off nearly 1 million workers through September, 55% more than the same time in 2024.

More Economic Analysis:

  • Bank of America resets inflation prediction ahead of CPI
  • Redfin drops surprising take on the housing market
  • JP Morgan CEO issues blunt warning on auto industry bankruptcies

Meanwhile, President Donald Trump’s tariffs are flowing through corporate supply chains, and companies are increasingly passing along some of those costs to consumers. In September, the Consumer Price Index showed inflation increased by 3% year over year, up from 2.3% in April before most tariffs were enacted.

A growing divide is forming between the so-called ‘haves’ and ‘have-nots,’ and companies are starting to point out troubling signs. For example, McDonald’s said lower-income customers were visiting its stores less this summer, O’Reilly Auto Parts said big auto repairs are starting to get pushed off, and Olive Garden has rolled out smaller portions at cheaper prices to keep customers coming in.

The situation may not get better anytime soon, given that a recent study by Resume.org found that 35% of companies expect to cut workers before the end of the year.

A mountain of debt—some $38 trillion in October—compounds problems, giving Congress less wiggle room to act and support economic weakness with fiscal policy.

Support is also uncertain from the Fed, which is torn between its dual mandate of low inflation and unemployment—two contrary goals. Rising unemployment and inflation led Federal Reserve Chairman Jerome Powell to sit on his hands this year until September, when he cut interest rates by a quarter-percentage point. The Fed is cutting rates further to help shore up jobs and economic growth, but if inflation climbs further, it could force it to the sidelines again.

The dynamic has created a perfect storm for gold, which performs best during periods of uncertainty, when Treasury yields trend lower and the U.S. Dollar weakens.

Lower Treasury yields make them less interesting as an alternative to gold for safe-haven investors. Since gold is priced in U.S. Dollars, Dollar weakness makes the precious metal cheaper for foreign buyers, including central banks.

The 10-year Treasury is hovering near 4%, down from 4.77% in early January, while the U.S. Dollar Index has fallen about 10%.

Bank of America releases updated gold outlook

Gold’s swinging price prompted analysts at Bank of America to revamp their gold forecast this week.

The TL;DR:

We are approaching our bearish $3,800/oz forecast for 4Q25, but see upside in 2026 unless macro backdrop changes.

Bank of America analysts, Oct. 28, 2025.

Bank of America’s analysts said in a research note to clients shared with TheStreet that gold’s rally had been extreme enough to make it “overbought.” Still, they argue that the structural drivers of gains this year remain in place, creating a backdrop for higher prices next year.

“The magnitude of the current rally is not out of the ordinary when compared to any of the gold bull markets since 1970. But monthly price declines of +10% are not unusual either, with gold posting strong rallies thereafter,” wrote the analysts.

The argument that this is a normal and arguably healthy pullback is rooted in history. Gold is prone to eye-popping booms and busts, and historically, the busts happen only when the underlying reasons for the rally change.

“If we had to distil the 1970, 1976, 1982, 1985, 2001 and 2018 bull markets down to one driver, we believe the oil crisis, stagflation, rebound trade, Plaza Accord, quantitative easing and COVID, respectively, have been key,” noted the analysts. “The lesson from that? Gold prices stopped pushing higher only once the underlying drivers changed. This time around, we turned bullish on the elevated US fiscal deficit during the Biden administration and carried that call into the Trump Presidency on a range of unorthodox macro polices. For now, many of these remain in place, so we see support for gold.”

Bank of America’s fourth-quarter downside gold price target is $3,800 per ounce, so gold is entering the range where its analysts think it should find its footing.

How high could gold go in 2026?

Bank of America believes that gold prices will reach $5,000 per ounce in 2026, partly supported by its underweighting in most portfolios. After gold prices fell by about 40% after the post-Great Recession rally in 2011, many investors shunned the precious metal.

That may create an opportunity for those willing to own more gold in portfolios than in the past.

“Investors would historically have benefited from adding a 5% gold allocation to traditional 60:40 portfolios,” wrote the analysts. “Calls to replace traditional 60:40 portfolios with 60:20:20 portfolios are not surprising. Our analysis shows that this switch would have delivered higher returns since 2020.”

Bank of America isn’t the only Wall Street firm remaining bullish on gold. Goldman Sachs recently said foreign central bank buying should underpin prices, and gold could rally from around $4,000 to $5,055 in the fourth quarter of next year.

Related: Goldman Sachs resets gold price target for 2026