The persistent weakness of the US dollar is one of the reasons for the recent rise in gold prices, which on Thursday once again surpassed the $3,400 per ounce mark. Analysts see the possibility of the rally continuing.
For instance, Bank of America recently reiterated its forecast that the precious metal will rise to $4,000 per ounce as early as the first half of 2026. It stated that falling interest rates and a weaker US currency, in particular, would support this increase.
Gold Expected to Benefit from Falling Interest Rates and Rising Inflation
Potential interest rate cuts in an environment of rising inflation would pave the way for a further depreciation of the US dollar, according to experts. And that will most likely cause the gold price to rise.
In the broader markets, observers expect that the US Federal Reserve will implement a first interest rate cut as early as next month. A 25 basis point rate cut is almost fully priced in, and further easing of US monetary policy is possible in October and December.
Fed Rate Cuts Expected
According to Bank of America, recent weaker data from the US labor market is a primary reason why the Fed could begin a new interest rate cutting cycle. Political pressure on the central bank from US President Donald Trump could further weigh on the dollar.
Analysts warn that higher inflation could support the dollar in the short term, as markets would scale back their interest rate cut expectations in that case. At the same time, BofA expects that any dollar rally will be used for selling – even if stubborn inflation data prompts the Fed to more strongly push back against easing expectations – and will, at best, provide the USD with only a short-lived recovery rally.
