Bank of America remains bullish on gold’s long-term prospects but warns that weakening physical demand and heavy ETF holdings could leave the market exposed to a sharp reversal.
Bank of America is warning that gold’s latest surge is being supported by an unusually narrow set of buyers, even as the metal trades near record territory and the bank itself still expects higher prices ahead. In a note dated 12 October, the lender said demand from several major physical-market sources has softened, raising the risk that the market could become more vulnerable if investors in exchange-traded funds begin to sell. Reuters reported on 13 October that spot gold was trading at $4,188.27 an ounce, close to the level Bank of America used in its forecast table, underscoring how much optimism is already priced in.
The bank’s concern is not that gold has lost all support, but that support is becoming uneven. According to the report, purchases across the market segments it tracks were down 16.6% year on year in the latest reading. Indian imports fell sharply, while Chinese imports rose, and central-bank buying also improved over the same period. That split matters because it suggests there is still appetite for gold, but it is concentrated in pockets rather than spread broadly across jewellery, bars, coins and institutional funds.
The contrast is especially clear in exchange-traded funds. The World Gold Council said physically backed gold ETFs held a record 4,256 metric tonnes at the end of September, up 67 tonnes from the previous month, after taking in $10 billion in inflows during the month even as prices eased. Bank of America says those holdings are a strength, but also a potential weakness: when positions are already large, there is less room for fresh buying, and any turn in sentiment can feed selling pressure instead. Kitco reported that the bank sees central-bank demand as another area that could become less reliable through year-end.
At the consumer level, higher prices are already changing behaviour. The World Gold Council said US buyers purchased 25% less gold jewellery by weight in the second quarter than a year earlier, while demand for jewellery also fell in India and China. Signet Jewelers chief executive J.K. Symancyk said on the company’s 9 September earnings call that rising gold costs were prompting “some resistance on units and a little bit of pullback”, particularly in lower-priced pieces and in items with greater gold content. The pattern suggests many shoppers are not abandoning gold altogether, but are choosing lighter or lower-carat items instead.
The macroeconomic backdrop is also working against the metal. According to InvestingLive and other market reports, Bank of America linked its cautious near-term view to oil-price pressure from the Iran conflict, which could keep inflation worries elevated and make the Federal Reserve less willing to ease policy quickly. Higher Treasury yields give investors an income alternative to gold, while a stronger dollar makes the metal more expensive for buyers using other currencies. Even so, the bank has not abandoned its bullish long-term view: its forecast sees gold averaging $4,000 an ounce in the fourth quarter of 2026, rising to $4,750 in early 2027 and reaching $5,000 in the second and third quarters of that year.
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