State Street’s baseline scenario sees gold price as high as $5,500/oz by Q1 2027

(Kitco News) – While tactical headwinds such as high yields, a strong dollar and the threat of Fed rate hikes persist, the structural tailwinds of Asian and central bank demand and the need for diversification amid high stock/bond correlation should drive gold prices as high as $5,500 per ounce by March of next year, according to the new Monthly Gold Monitor from State Street Global Advisors.

In their review of tactical headwinds, State Street strategists led by Aakash Doshi said gold’s opportunity cost and U.S. dollar strength weighed on investor sentiment in June. 

“Spot bullion fell 11.7%, testing $4,000/oz support in fits and starts,” they wrote. “This compared to a 22.2% decrease in silver, 20.4% drop in bitcoin, and 9.2% decline in commodities flat price. On a risk-adjusted basis, gold outperformed silver, bitcoin, and spot commodities last month. US listed gold ETFs posted hefty monthly redemptions of ~$5.3B following relatively balanced fund flows during April and May.”

The strategists noted that the U.S. OIS curve was pricing in around 1.5 Fed rate hikes this year compared to the two to three rate cuts expected as recently as February, which served to boost real yields across the curve while pushing the assets in U.S. money market funds to a record $7.9 trillion, with the U.S. dollar catching a strong bid. “During the March-June war period, gold underperformed against the greenback, versus the rest of G10 FX, by ~2.6 percentage points.”

And while energy prices and rate expectations have moderated, the market still sees hikes on the horizon. 

“Though ICE Brent crude oil prices have fallen below our $80/bbl target on the potential for a sustained US-Iran ceasefire, rates traders still expect the Fed to tighten,” the strategists said. “Rebounding US labor market data and Fed Chair Warsh’s focus on a 2% inflation target have likely lifted the bar for cuts to be reintroduced in the short-term.”

State Street sees these tactical headwinds more than offset by gold’s significant structural tailwinds.

“Though the ride may be bumpier versus 2024-2025, we believe the gold bull cycle still has legs,” they wrote. “A hawkish Fed pivot shouldn’t change the structural post-Covid dynamic for gold.”

First, the strategists point out that global debt loads rose to a record $353 trillion during the first half of 2026. “Critically, the government share of debt is fast approaching 1/3 of that figure, also an all-time high,” they warned. “An active fiscal and inflation impulse should continue to support demand for gold as a monetary hedge.”

Gold’s diversification function is also becoming more important as equities and fixed income markets increasingly move in tandem.

“Stock/bond correlations remain elevated versus the ~25 year regime from the late 1990s through 2021,” the strategists noted. “Even as correlations have eased somewhat in 2025-2026, we expect demand for liquid diversifiers will remain a key consideration for asset allocators.”

And global demand for physical gold, particularly from Chinese retail investors and emerging market central banks, remains strong. “China retail imports have soared since the Iran conflict and local premiums have also risen, suggesting tight onshore supply/demand fundamentals.”

Lastly, gold’s share of global managed fund and exchange-traded fund assets remains below 1%. “This is well shy of the 3-10% strategic target we recommend for most portfolios,” they said.

“We project bullion prices can rally to $4,750-5,500/oz over the next 6-9 months (70% baseline) while bearish tactical headwinds have increased the odds, in our view, of the yellow metal hovering around $4,000-4,750/oz (25% scenario),” State Street said. “We see robust price support at $3,750-4,000/oz but view the odds of $5,500-6,250/oz (5% bull case) as less likely versus the January/February macro environment.”