Gold is always a winner when the Fed cuts rates with inflation this high

Bank of America forecasts gold will be a significant winner if the Federal Reserve cuts rates while inflation remains above 2%, citing historical data showing gold has never declined during such 'inflationary easing' periods over the past 25 years, averaging 13% annual returns. The firm projects gold to reach $4,000 per ounce by 2026, building on its over 40% gain in 2025 to $3,729 per ounce, fueled by robust central bank demand amid concerns over Fed independence and a more than 10% depreciation of the U.S. dollar.

Analysis

Bank of America has issued a strongly bullish forecast for gold, contingent on an expected Federal Reserve interest rate cut. The analysis hinges on a historical precedent from the past 25 years, where gold prices have never declined during periods of 'inflationary easing'—defined as monetary policy easing while inflation remains above the Fed's 2% target. During such cycles, gold has historically returned approximately 13% annually, excluding the Global Financial Crisis. This outlook is supported by gold's significant recent performance, with futures gaining over 40% in 2025 to reach $3,729 per ounce. Bank of America projects a further rise to $4,000 per ounce by 2026. The bullish case is reinforced by two key market dynamics: a more than 10% slump in the U.S. dollar in 2025 and robust structural demand from global central banks, which are reportedly favoring gold over U.S. Treasuries amid concerns over Federal Reserve independence.

Key Decisions for Investors

• Given the compelling historical data and multiple concurring macroeconomic tailwinds, investors may consider initiating or adding to long positions in gold ahead of the anticipated Federal Reserve policy shift.
• The upcoming Fed interest rate decision is the primary near-term catalyst; a rate cut would validate Bank of America's thesis and could trigger further upward momentum in gold prices.
• Investors should monitor the U.S. dollar's performance and central bank buying trends as key indicators supporting the long-term bullish case for holding gold, which aligns with Bank of America's $4,000 price target for 2026.