(Kitco News) - Gold prices remain stuck in neutral, clinging to support around $4,100 an ounce as inflation pressures drive bond yields and the U.S. dollar higher; however, one Canadian bank remains bullish on the precious metal over the longer term, even as it significantly lowers its price forecasts through the end of the decade.
In its latest precious metals outlook, commodity analysts at CIBC Capital Markets lowered their fourth-quarter gold price forecast to $4,500 an ounce, down 31% from their $6,500 estimate from the start of the year. The bank now expects gold prices to average $5,200 an ounce in 2027, down from its previous forecast of $6,500, and $5,500 in 2028, compared with its earlier estimate of $6,000.
Long-term, the bank expects gold prices to average $4,800 an ounce in 2029, $4,500 in 2030 and $4,200 in 2031.
Commodity analysts led by Anita Soni and Cosmos Chiu said that although the monetary policy environment has become increasingly challenging for gold, the fundamental drivers that supported last year's historic rally remain firmly in place.
The analysts explained that persistent inflation, exacerbated by the ongoing U.S.-Iran conflict and elevated energy prices, has forced the Federal Reserve to adopt a more restrictive monetary policy stance. However, they expect geopolitical uncertainty, government debt concerns and central bank reserve diversification to continue supporting gold over the longer term.
The bank's revised outlook follows a volatile year for the precious metal. CIBC noted that, gold has fallen nearly 24% from its record high around $5,600 an ounce earlier this year. Prices dropped to approximately $4,000 in late June before recovering toward $4,400 during the summer.
However, renewed selling pressure emerged in September after the Federal Reserve raised interest rates by 25 basis points and signaled that additional tightening could be necessary to contain inflation.
The analysts said that higher real interest rates and a stronger U.S. dollar remain gold's most significant near-term challenges, as they increase the opportunity cost of holding the non-yielding precious metal.
At the same time, the benchmark 10-year U.S. Treasury yield's move above 5% has created competing forces within the gold market. Although higher yields make bonds more attractive relative to gold, CIBC noted that rising borrowing costs are also drawing attention to the sustainability of U.S. government finances.
The analysts explained that growing concerns about sovereign debt and financial market stability could reinforce gold's role as a hedge against broader economic risks, even as elevated yields limit its near-term upside.
CIBC also sees the potential for a more favorable monetary policy environment over the medium term, particularly if economic growth weakens or inflation pressures moderate enough to allow the Federal Reserve to ease interest rates more aggressively than markets currently anticipate.
The bank noted that real interest rates below 2% have historically provided a supportive environment for gold. A decline in inflation-adjusted yields could therefore become an important catalyst for a recovery in prices through 2027 and 2028.
Beyond monetary policy, CIBC expects investment demand and central bank purchases to remain two of the most important structural pillars supporting the precious metal.
According to the report, global gold-backed exchange-traded funds attracted a record $30.7 billion in investment during the third quarter, representing 211 tonnes of physical gold demand. The strong performance followed outflows of 45 tonnes in the second quarter, highlighting the continued volatility in Western investment demand.
The analysts noted that European demand was particularly strong, led by the United Kingdom, while North American investors returned to the market in August and September after selling earlier in the year.
However, the bank expects Asian investors and over-the-counter investment activity to play an increasingly important role in supporting gold demand through the remainder of 2026.
Physical investment demand has also remained resilient. Global bar and coin purchases totaled 784 tonnes during the first half of the year, representing one of the strongest first-half performances on record.
CIBC noted that investors in China and India continue to favor physical gold as a store of value amid geopolitical uncertainty, limited alternative investment opportunities and concerns about economic stability.
At the same time, the analysts said that speculative positioning in gold futures has weakened as higher bond yields and a stronger U.S. dollar have prompted fund managers to reduce their bullish exposure.
The bank suggested that the divergence between futures market selling and resilient physical investment demand could help support a recovery in gold prices next year.
Central bank demand is another critical component of the bank's longer-term bullish outlook.
CIBC pointed out that central banks purchased 345 tonnes of gold during the first half of 2026, with second-quarter purchases reaching 289 tonnes, a fivefold increase from the first quarter.
Although official sector purchases started the year relatively slowly, the analysts expect demand to remain well above historical averages as central banks continue diversifying their reserves away from U.S.-dollar-denominated assets.
CIBC said the persistent trend within the official sector demonstrates that gold remains a strategic reserve asset rather than simply a short-term investment driven by changes in monetary policy.
Meanwhile, the bank expects limited growth in mine production to provide additional support for gold prices.
Although elevated prices have encouraged mining companies to extend the lives of existing operations and develop new projects, CIBC expects global mine production to increase by only about 1% annually.
The analysts noted that operational disruptions, declining grades and lengthy permitting processes continue to limit the industry's ability to respond to stronger demand.
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