Gold selloff opens door to investors, miners have upside: BofA

Gold’s recent selloff has opened up a new opportunity for investors, though some patience may be required under the current macro environment, 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 US-Iran war.

Previously, the bank had set a price target of $6,000/oz. by next spring, which it now deems unlikely to happen given the shift in expectations around the Fed’s monetary policy.

That outlook was built on the premise that more rate cuts were coming this year. The anticipation of 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.

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.

Short-term pain, long-term gain

Nevertheless, BofA — like its peers including UBS and Goldman Sachs — remain optimistic on gold’s performance in the long run, with persistent US 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.

Gold stocks undervalued

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 (P/NAV) approach, BofA found that companies are on average pricing gold at $3,354/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 ($4,395/oz.) of the companies under its coverage and Franco-Nevada (NYSE: FNV) the lowest ($2,416/oz.).

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

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