Top brokerage firms believe that gold dropping to $3,700 is a real possibility

Investing.com - According to analysis by technical strategists at Bank of America, gold’s recent pullback may have further downside potential, with both technical and macro signals pointing to an extended consolidation phase rather than a quick rebound.

XAU/USD rose 2.6% yesterday, and gold futures also saw an increase, but the year-to-date gain is less than 4%.

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Why is Gold Falling?

Macro factors are putting pressure on gold prices. BCA strategist Peter Berezin pointed out three major drivers behind gold’s recent weakness. First, the strengthening dollar, coupled with rising interest rate expectations.

Berezin stated, “From a macro perspective, a stronger dollar and rising rates are typically bearish for gold.”

Second, positioning factors have played a role. Gold—especially silver—entered overbought territory in March. In this situation, risk-off events could trigger sharp declines, as leveraged investors or short-term traders exit their positions. Berezin noted that similar dynamics have occurred in past events, including October 2008, when gold still dropped significantly despite overall market pressure.

Third, demand from the official sector seems to be shifting. Some central banks are reducing their purchasing scale or even selling reserves. Reports indicate that Poland is considering selling gold to fund defense spending, while Turkey has been selling gold to support its currency. There are also signs that some Gulf countries may be slowing their purchases due to weakened export revenues.

Overall, the combination of technical consolidation, tightening financial conditions, and weak central bank demand suggests that even after experiencing strong gains over the years, gold may remain under pressure in the coming quarters.

Bank of America Sees Greater Downside Risk

Strategist Paul Ciana stated that gold appears to be in a corrective “fourth wave” phase, a pattern that typically occurs after a strong rebound and can last for months.

He wrote, “Price patterns and momentum signals indicate that gold is still in the fourth wave consolidation phase,” adding that this structure “could reasonably persist into the second or even third quarter.”

This suggests that gold may struggle to return to previous highs in the short term. The failure to maintain January’s peak reinforces the expectation of range-bound trading with a downward bias.

Ciana indicated that the bank believes the risk points to the $4,000 level, with the 50-week moving average—currently near $3,967—acting as a key technical reference point. He noted that given the scale of gold’s previous gains, a deeper pullback is not uncommon.

Gold prices surged from around $1,810 at the end of 2023 to nearly $6,000 in early 2026. In this context, Ciana stated, “A pullback to $3,700 would not be unusual,” and described this as consistent with a standard correction following such a strong rally.

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