Wall Street was once uber bullish on gold. Now it's changing its tune

Wall Street firms are adjusting their views on gold downward after the unexpectedly hawkish tone of the new Federal Reserve Chairman Kevin Warsh. "After the meeting, there is a much higher risk that the Fed will hike this year," Bank of America commodity strategists led by Michael Widmer wrote Friday, referring to the Fed policy meeting last week. "This will in all likelihood make it harder for gold to push meaningfully higher near-term." Bank of America's previous $6,000 target for an ounce of gold looks unlikely now, because the inflation backdrop remains "uncomfortable," likely driving tighter monetary policy, Widmer said. Weaker gold prices have been closely correlated with an increased probability of rate hikes by yearend, the strategist said. "Or put a different way: the shift from 'inflationary cuts' to tighter monetary policy reduces gold upside by around 50%, all else equal." Changed outlooks Regarded as a safe-haven asset that holds a store of value, investors gravitate toward gold at times of market uncertainty in hopes that it will act as a hedge against inflation. But because the yellow metal doesn't pay a yield, the metal is also very sensitive to expectations for long-term, real interest rates. Bank of America isn't alone in rethinking its gold view. Other Wall Street firms also changed their gold outlook t o accommodate the hawkish tone of the Federal Reserve in the wake of last week's policy meeting, which left the fed funds rate unchanged at 3.50% to 3.75%. …