(Kitco News) - The gold market continues to struggle as rising tensions in the Middle East push oil prices higher, stoking new inflation fears and driving aggressive interest rate expectations.
Both gold and silver prices have dropped below critical support levels as 10-year bond yields have pushed to a fresh 20-year high above 5.20%. Investor demand in the precious metals market is struggling as rising bond yields have increased the opportunity cost of holding non-yielding assets.
Spot gold last traded at $4,134.80 an ounce, down nearly 3.5% on the day; at the same time, spot silver last traded at $61.19 an ounce, down more than 4.5% on the day.
Although gold and silver continue to face significant near-term headwinds, one bank says the long-term bullish trend remains in place.
Heading into the final quarter of 2026, commodity analysts at BMO Capital Markets are lowering their three-month gold price forecast; however, the analysts have significantly upgraded their long-term view.
In its updated fourth-quarter forecasts, published Monday, BMO said it expects gold prices to average around $4,650 an ounce in the fourth quarter, down 2% from its previous projection of $4,750 an ounce. The bank sees gold prices returning to $5,000 an ounce only by the second quarter of next year.
However, the biggest shift in its forecast is its long-term outlook; the Canadian bank sees gold prices averaging around $4,000 an ounce over the long term, a 29% increase from its previous long-term outlook of $3,100.
“With TIPS yields spiking and many central banks taking the first tentative steps into a hiking cycle, this may seem counterintuitive; however, gold has been surprisingly resilient in recent months in the wake of hawkish repricing, suggesting to us that the relatively newer themes of monetary debasement and Chinese demand are having a larger impact on the gold price than traditional yield drivers. …We see Chinese buying as highly countercyclical, and we expect PBoC demand to be strong throughout the forecast period, backstopping prices at a higher level,” the analysts said.
Looking through the rest of 2026, BMO said that despite its slight downward revision, it still sees asymmetrical upside risks for gold. The analysts said the critical headwind for gold will remain U.S. interest rates; however, they added that the precious metal can continue to rise in a tightening environment as sovereign debt fears remain elevated.
“Gold appears in the upper end of our order of preferences, and we continue to see prices drifting—higher albeit in a more orderly manner than seen last year—as the metal increasingly decouples from real yields and monetary debasement and dedollarisation steadily emerge as larger drivers,” the analysts said. “Gold's pathway into year-end will be governed by the relative strength of the ‘debasement trade’ whereby rising rates and term premium signal fiscal sustainability concerns, bullish for gold, versus the counteracting traditional ‘opportunity cost trade,’ whereby rising rates are bearish. We think the hawkish FOMC has bought back some credibility points for now, helping also to flatten the term premium, but it won't take much for debasement concerns to rear their head again. We continue to see price risk skewed to the upside (Q4 $4,650/oz), absent a major further spike in oil prices.”
BMO analysts see a similar pattern for silver as the precious metal also faces near-term headwinds. Despite the near-term uncertainty, the analysts said higher gold prices are expected to drag silver prices higher.
Heading into the fourth quarter, BMO sees silver prices averaging around $67.40 an ounce over the next three months, compared to its previous average forecast of $71.40 an ounce. The bank sees silver starting the new year at a slower pace, with an average first-quarter price of $69.30 an ounce, down from its previous estimate of $73.50 an ounce.
“In silver, faster-than-expected thrifting and slower solar deployment are loosening industrial market balances, and we continue to see the metal underperforming gold over the coming quarters,” the analysts said.
However, over the long term, BMO sees silver prices averaging around $47 an ounce, up 31% from its previous long-term average forecast of $36 an ounce.
Looking through to year-end, the analysts said the critical driver for silver remains industrial demand from the solar power sector.
“Prior to 2025, the prevailing view across much of the solar industry was that the major gains from silver thrifting had already been achieved,” the analysts said. “However, this view was put to the test by the spike to over $120/oz in January this year. In response, a number of Chinese solar manufacturers announced initiatives aimed at lowering silver content through technologies such as narrower metallization lines, reduced paste consumption, higher copper substitution rates, and the development of silver-coated copper pastes. These efforts are now beginning to bear fruit, resulting in meaningfully lower long-term silver intensity expectations.”
