Commerzbank Sees Longer Consolidation
Rising inflation pressure caused by the ongoing war in Iran means investors may have to wait longer for gold to break out of its current consolidation phase, according to Carsten Fritsch, commodity analyst at Commerzbank.
Fritsch said gold’s recent price action has been counterintuitive. Although the metal is traditionally viewed as an inflation hedge, it has struggled even as the global energy crisis has pushed consumer prices higher.
Safe-Haven Demand Fails To Lift Gold
Gold has also failed to attract a strong safe-haven bid despite ongoing turmoil in the Middle East.
That weakness reflects a major shift in expectations around U.S. monetary policy since the start of the Iran conflict.
Fed Expectations Have Shifted Sharply
Before the Iran war began, markets expected the Federal Reserve to cut interest rates by roughly 50 basis points this year.
Since the war started and oil prices surged, those expectations have changed significantly. Fed Funds futures now imply a U.S. key interest rate of around 3.8% by year-end.
Markets Now Price In Rate Hike Risk
With the effective Fed rate slightly above 3.6%, markets are now effectively pricing in the possibility of a rate increase later this year.
According to Fritsch, a 25-basis-point rate hike is fully priced in by spring 2027. The CME FedWatch Tool also shows markets assigning more than a 50% chance of a rate hike in December.
Higher Rates Hurt Non-Yielding Gold
The threat of higher interest rates increases the opportunity cost of holding gold.
Because gold does not pay interest or dividends, it becomes less attractive when investors can earn higher yields from bonds, cash or other income-generating assets.
Commerzbank Cuts Gold Target
In response to the changed backdrop, Commerzbank has lowered its year-end gold price forecast.
The German bank now expects gold to finish the year around $4,800 an ounce, down from its previous target of $5,000.
Still Some Upside From Current Levels
Despite the downgrade, the new target still implies upside from current prices.
Spot gold was last trading at $4,483.95 an ounce, up 1.11% on the day, meaning Commerzbank’s updated forecast suggests a potential rally of about 8% by year-end.
Hormuz Reopening Could Support Gold
Fritsch said the bank’s base-case scenario assumes a two-month transition period followed by the reopening of the Strait of Hormuz.
If Brent oil prices fall after the reopening, current expectations for Fed rate hikes could reverse, creating a more supportive environment for gold.
Fed Still Expected To Hold This Year
Commerzbank does not expect the Federal Reserve to raise interest rates this year.
The bank’s economists forecast that rates will remain unchanged and that the Fed’s next move is still more likely to be a cut, though not until at least the second quarter of 2027.
Long-Term Gold Outlook Remains Positive
Commerzbank maintained its forecast for gold to reach $5,200 per troy ounce by the end of 2027.
Fritsch said the structural factors supporting gold remain intact, including weakening confidence in the U.S. dollar as a reserve currency and continued central bank gold purchases.
Government Debt Supports Investor Demand
Investor interest in gold is also expected to remain elevated.
Fritsch pointed to high and rapidly rising government debt levels, which may contribute to monetary policy that remains too loose relative to inflation over the longer term.
Silver Forecast Also Lowered
Commerzbank also revised its silver outlook lower.
The bank now expects silver to end the year around $80 an ounce, reflecting both the reduced gold forecast and weaker industrial demand.
Industrial Demand Weakens For Silver
According to the latest assessment from the Silver Institute, industrial demand for silver is expected to decline for a second consecutive year.
Demand is projected to fall to a four-year low, creating a near-term headwind for the metal despite a still-tight market.
Silver Market Remains Tight
Even with weaker industrial demand, Commerzbank still expects silver prices to rise next year.
The bank projects silver will end 2027 at around $90 an ounce, down from its previous target of $95.
Gold Needs A Policy Shift
For now, gold remains caught between supportive long-term fundamentals and restrictive short-term monetary expectations.
The metal may need either a drop in energy prices, softer inflation data or a reversal in Fed rate hike expectations before it can break decisively out of its consolidation phase.
