Thekabarnews.com—BMO Capital Markets reduced its gold price projection for the second half of 2026. They said a more hawkish outlook for U.S. Federal Reserve monetary policy continues to weigh on market sentiment toward precious metals.

Gold prices are hovering near their lowest levels of the year. Increasing forecasts that U.S. interest rates will remain higher for longer in the face of ongoing inflation fears are weighing on them.

The recent policy stance of the Fed has supported the US dollar and lifted bond yields. As a result, the dollar has weighed on non-yielding assets such as gold, analysts say.

In its Q3 commodity outlook, BMO anticipated gold to average about $4,625 an ounce in the second half of the year. This is down 5 percent from its prior expectation.

Even with the downgrade, BMO is still positive about gold’s longer-term outlook.

The precious metal is expected to progressively rebound and return over $5,000 per ounce in the first quarter of 2027. This is likely as macroeconomic conditions stabilize and investor confidence increases.

Furthermore, analysts expect the average gold price to be around $4,200 an ounce in the second and third quarters of next year.

If energy costs continue to fall in the coming months, reduced oil prices could provide some support to gold demand. This effect would be particularly strong in emerging nations.

BMO says falling energy prices and less inflation might ultimately mean better market conditions for precious metals.

But economists warned that monetary policy remains the biggest short-term danger to the market.

While the Federal Reserve kept benchmark interest rates steady at its last meeting, policymakers indicated support for at least one rate hike before year-end.

The central bank is taking a more restrictive approach. This is because concerns linger that higher energy costs and broader geopolitical developments could keep inflation elevated.

The Fed’s policy guidance led investors to revise expectations for future interest rates. This helped to lift Treasury yields and the U.S. dollar, BMO said.

Those trends have weighed on gold, which typically becomes less desirable when interest-bearing assets offer better yields. The bank also changed its short-term outlook for silver.

BMO is now expecting silver to average around $69 an ounce in the third quarter. Moreover, they predict silver to rally back to around $71 an ounce in the final quarter of 2026.

But analysts still see industrial demand, notably from power infrastructure and electrification expenditures, as a longer-term underpinning of silver prices.

The latest projection follows similar changes by a number of major financial organizations. These firms have cut their gold outlooks in light of changing expectations for U.S. monetary policy.

Other investment banks also said the key problems for the precious metals market were rising interest rates, reduced demand for exchange-traded funds (ETFs), and a stronger dollar.

BMO said that gold’s long-term fundamentals remain intact, but that volatility is expected to prevail in the near term. Central bank buying, geopolitical uncertainties, and increased investor interest may help underpin prices as financial conditions improve, the bank said.

But analysts predict Federal Reserve policies, and global macroeconomic developments to remain the main drivers of gold prices for the rest of 2026.

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