Investing.com — Bank of America analysts argued in a note Thursday that gold is emerging as a more attractive safe-haven asset than government bonds, driven by fiscal concerns and global economic dynamics.

While falling real interest rates typically boost gold prices, BofA notes that “higher rates do not necessarily put pressure on gold,” signaling a shift in how the yellow metal reacts to macroeconomic conditions.

One of the key drivers, according to BofA, is growing fiscal pressure. The U.S. national debt is expected to reach unprecedented levels in the next three years, and interest payments on this debt are likely to increase as a share of GDP.

As BofA explains, “This makes gold an attractive asset,” prompting them to reaffirm their bullish target of $3,000 per ounce.

BofA also highlights that both leading U.S. presidential candidates—Kamala Harris and Donald Trump—show little inclination toward fiscal restraint.

In fact, “policymakers strongly favor fiscal expansion” globally, the bank points out.

Future commitments, including climate initiatives, defense spending, and demographic challenges, could raise spending by as much as 7-8% of GDP annually by 2030, said the bank, citing IMF estimates.

If markets struggle to absorb the increasing debt issuance, volatility could rise, further supporting demand for gold. “Central banks in particular could further diversify their currency reserves,” BofA notes, adding that gold holdings by central banks have grown from 3% to 10% of total reserves over the past decade.

Western investors have also stepped back into the gold market in recent months. Although China’s gold imports fell during summer amid stimulus efforts, non-monetary gold demand from Western participants has increased.

However, BofA warns that short-term gains may be limited as markets factor in “a no-landing scenario for the U.S. and a slower pace of rate cuts,” which could cap gold’s near-term upside.

“There is also a risk that gold may give back some of the recent gains, although we ultimately see prices supported at $2,000/oz,” BofA concluded.