Bank of America analysts predict a potential surge in gold prices, with estimates reaching $3,000 per ounce within the next 12-18 months. However, they acknowledge current market flows don’t necessarily support this price point.

BofA explains that reaching $3,000 hinges on increased non-commercial demand. They believe a Federal Reserve rate cut could trigger this, leading to inflows into physically backed gold ETFs and higher trading volumes.

Central bank purchases are another key factor. “Ongoing central bank purchases are also important, and a push to reduce the share of USD in foreign exchange portfolios will likely prompt more central bank gold buying,” BofA says.

This shift is driven by gold’s status as a long-term value store, hedge against inflation, and effective portfolio diversifier.

BofA’s model considers various factors, including mine output, recycled gold, and jewelry demand. However, to estimate a balanced market price, they also need to factor in investment demand. Currently, non-commercial purchases support an average price of $2,200 per ounce year-to-date. A significant increase could push prices towards $3,000.

The report highlights a recent World Gold Council survey indicating central banks’ intention to purchase more gold. This aligns with the growing concerns around US Treasury market fragility, potentially prompting further diversification into gold by both central banks and private investors.

While a Treasury market breakdown isn’t BofA’s base case, they acknowledge it as a potential risk. “Under this scenario, gold may fall initially on broad liquidations but should then gain,” they conclude.