Gold price is expected to be heading towards 4,000 USD/ounce

Gold prices have surged to a one-month high, surpassing $3,400 an ounce on Thursday, supported by a persistent weakness of the US dollar.

Analysts at Bank of America expect this rally to continue, maintaining their forecast that the precious metal will reach $4,000/ounce in the first half of 2026.

In a report published last week, the bank said that falling interest rates and a weaker US dollar will be the foundation to support gold's rally.

Interest rate cuts amid rising inflation create fertile conditions for the weakening of the USD. Cutting interest rates in an inflationary environment that remains high is likely to push the precious metal higher," the analysts wrote.

The latest spot gold price was recorded at 3,417.1 USD/ounce, up 0.64% on the day. At the same time, the USD Index was recorded at 97.81 points, down 0.32% on the day.

The market expects the US Federal Reserve (FED) to start cutting interest rates in September. The CME FedWatch tool shows that traders are almost fully booked on a 25 basis point cut, with the possibility of further easing in October and December.

Recent US economic data has prompted us to adjust our view of interest rates down, BofA said, citing the weakening labor market trend. Colding employment data, narrowing employment growth range and other signs of labor market adjustment could support the Feds change in risk assessment.

The bank added that political pressure on the Fed, including criticism from US President Donald Trump, could continue to put pressure on the USD.

The risks to the Feds independence have been well documented, but the market now also needs to consider the consequences of institutional erosion in statistical agencies, the analysts said.

The BofA warned that higher inflation could temporarily support the US dollar as the market eases expectations of policy easing. Economists predict the core personal consumption expenditure (PCE) price index - the Fed's preferred inflation measure - will show an increase of 2.8% annually in July, unchanged from June.

However, Bank of America predicts that any increase in the USD will soon be sold off.

If inflation data continues to show stiff highs, forcing the Fed to react more strongly to easing expectations, the USD could experience another recovery. However, we consider such an event to be short-term," the analysts wrote.