Gold’s bull run isn’t over: TD Securities sees next leg above $5,000

(Kitco News) – Gold continues to struggle as prices fall below critical support at $4,300 an ounce; however, one bank sees limited downside for the precious metal as the environment looks ripe for a renewed drive above $5,000 an ounce.

In his latest market commentary, Ryan McKay, Senior Commodity Strategist at TD Securities, said that although gold continues to face headwinds from higher interest rates, underlying investment demand remains resilient and is starting to strengthen across several important segments of the market.

“The time is coming for the next leg higher in gold,” McKay said. “The yellow metal has shown the ability to hold strong despite Fed hikes, and with investor and central bank appetite growing again, gold looks poised to make a renewed run at prices north of $5,000/oz into 2027.”

Although rising interest rates and elevated real yields would traditionally be expected to weigh on the non-yielding precious metal, McKay said gold’s traditional relationship with interest rates remains broken.

He noted that there is historical precedent for gold prices to rally alongside rising real rates, particularly when other macroeconomic risks dominate investor sentiment. TD Securities sees elevated geopolitical uncertainty, de-dollarization, concerns about currency debasement, deteriorating fiscal conditions and persistent inflation fears continuing to support investment demand.

At the same time, McKay pointed out that markets have already priced in three additional Federal Reserve rate hikes. He said that creates an asymmetric risk for gold, as any failure by the central bank to meet those expectations could accelerate the precious metal’s upside.

However, TD Securities’ bullish outlook is not dependent solely on monetary policy. McKay said a significant shift in investment flows is developing beneath the surface of the gold market.

McKay explained that bullish speculative positioning has been slowly improving as discretionary macro investors have been rebuilding their net-long exposure since June. He said that this buying has helped support gold through the early summer and remained relatively resilient even as expectations for higher interest rates strengthened.

McKay said renewed geopolitical concerns, stronger central bank demand and questions surrounding the Fed’s ability to contain inflation initially helped drive those flows. More recently, concerns about U.S. fiscal policy and renewed currency debasement themes have helped keep investors interested in gold despite tighter monetary policy.

In an environment of growing fiscal uncertainty, the Canadian bank sees room for investment demand to grow further. The bank estimates that discretionary positioning remains about 30% below its 2022 peak and 50% below estimated record highs reached in 2016.

Specifically, McKay said that Western investment demand appears to be improving through gold-backed exchange-traded funds. TD Securities estimates that global gold ETFs have accumulated roughly 6.3 million ounces since July, with little indication that demand has slowed despite the Federal Reserve’s renewed tightening cycle.

“While this reading of flow strength has certainly improved, we are still only in the very early days of what a renewed run would look like,” McKay said.

Along with growing investor interest, TD Securities sees central bank demand providing another important floor under gold prices.

Based on customs data, trade flows and inventory discrepancies, the bank estimates that global central banks have purchased nearly 70 tonnes of gold per month on a three-month moving average. McKay said official sector buyers could also become increasingly opportunistic, stepping in to buy dips around or below current prices.

China remains one of the strongest sources of demand. TD Securities said Chinese non-monetary gold imports are running at a record pace so far this year, supported by central banks, institutional investors, retail buyers and ETF demand.

The People’s Bank of China has reported gold purchases for 22 consecutive months, while TD Securities estimates that actual Chinese central bank demand could be significantly stronger than officially reported. Chinese gold ETFs have also experienced persistent inflows, while net gold positions among the largest traders on the Shanghai Futures Exchange are near their highest levels since TD Securities began tracking the data in 2017.

For TD Securities, the combination of robust central bank purchases, improving ETF flows, relatively light speculative positioning and persistent concerns surrounding inflation, fiscal sustainability and currency debasement suggests gold’s current weakness could ultimately prove temporary.

Even with the Federal Reserve maintaining a tighter monetary policy stance, McKay said these longer-term investment flows should allow gold to withstand higher rates and begin a new bull-market leg, with TD Securities looking for prices to move above $5,000 an ounce into 2027.

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