State Street anticipates gold surpassing $5,000 even with short-term challenges

State Street: Gold Could Surpass $5,000 by Year-End Despite Market Challenges

Gold prices may be facing short-term obstacles as rising oil costs fuel inflation and push interest rate expectations higher. However, analysts at State Street Investment Management, led by Aakash Doshi, believe there is still a strong possibility that gold could climb above $5,000 per ounce before the year concludes.

The team at State Street remains optimistic about gold, assigning a 50% probability that prices will fluctuate between $4,750 and $5,500 throughout the remainder of the year.

Nevertheless, the firm has moderated its bullish outlook, now identifying solid support levels for the precious metal.

Updated Market Outlook

According to their latest monthly analysis, “We have reduced the likelihood of gold reaching the $5,500–$6,250 per ounce range from 35% to 30%. Still, we expect the $4,000–$4,100 range to act as a price floor, with all-time highs potentially being revisited by 2027. The bearish scenario, where gold trades between $4,000 and $4,750—as it did at the end of March—now carries a 20% chance in our forecast.”

Although State Street maintains a positive stance on gold, analysts point out that the recent price decline and current period of consolidation are not unexpected. These movements reflect shifting market sentiment, influenced by the ongoing U.S.-Israel conflict with Iran.

At the start of the year, markets anticipated the Federal Reserve would cut rates by 58 basis points in 2024. However, turmoil in the Middle East has disrupted energy supply chains, dramatically altering those expectations.

“By mid to late March, there was a moment when the market saw over a 60% chance of a Fed rate hike this year,” the analysts observed.

Currently, the CME FedWatch Tool indicates a 71% probability that interest rates will remain unchanged through the end of the year. Despite this neutral stance from the Fed, gold prices have shown resilience, holding just below $4,800 per ounce. The latest spot price was $4,774.20, marking a daily gain of more than 1%.

Long-Term Trends Remain Supportive

Despite these challenges, State Street advises investors to keep their attention on broader, long-term market dynamics rather than short-term interest rate moves.

“The gold correction in March was primarily due to the Fed’s policy repricing and rising real yields, which strengthened the U.S. dollar. This was likely not a sign of weakening global gold demand driven by currency debasement concerns or alternative fiat allocations. Investors should weigh temporary cyclical pressures—such as the increased opportunity cost of holding gold due to higher real yields—against the more favorable long-term structural factors supporting gold,” the report explained.

While elevated oil prices are expected to keep inflationary pressures high, Doshi’s team cautions that this scenario presents both risks and opportunities.

“A prolonged conflict that pushes ICE Brent above $150 per barrel could negatively impact gold via the Fed and U.S. dollar channels, but it would also heighten the risk of recession or stagflation. Conversely, if oil prices stabilize around $80–$85 per barrel, we believe gold could quickly return to levels above $5,000 per ounce,” they noted.

Rising Global Debt Adds to Gold’s Appeal

Beyond U.S. monetary policy, State Street highlights the unsustainable growth in government debt as a key long-term driver for gold. Citing Congressional Budget Office projections, net interest payments on U.S. federal debt are expected to surpass $1 trillion this year for the first time ever. The U.S. is not alone in facing mounting debt challenges.

“Expanding deficits—driven by war expenditures, higher interest costs, and declining revenues—are contributing to elevated debt levels and increasing the risk of long-term currency devaluation, which has historically boosted gold demand. Global debt has reached an unprecedented $348 trillion, roughly three to four times the world’s GDP, with the most significant increases coming from government borrowing rather than the private sector. This trend could signal persistent fiscal pressures ahead,” the analysts concluded.