With a December Fed hike close to fully priced, gold’s next leg depends on whether markets start to price a faster sequence of hikes. That makes Fed speakers and next month’s data more important for bullion than geopolitical headlines. A firmer dollar, helped by Treasury yields near 5%, adds to the pressure, especially as Japan’s attempts to slow the yen’s slide (which continued today ) have so far done little to dent broad dollar strength. On the downside, central bank buying below $4,000 may cushion the fall. On the upside, any sign that oil prices are easing would weaken the inflation case for further hikes and could quickly revive interest in gold.
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TD’s $3,900 floor once looked safe as long as the Fed held off, but with hikes back on the table, the bank now expects it to be tested.
Summary:
TD Securities’ Bart Melek expects gold to retest support near $3,900 an ounce, citing higher US rates and a stronger dollar
Gold slipped below $4,000 on Wednesday, extending a two-day slide after hotter than expected US October CPI
In July, TD said a break below $3,900 was unlikely unless the Fed hiked early, and that condition has now flipped
TD described gold as range-bound between $3,900 and $4,250 in late October
The bank still sees potential for record highs above $5,300 in 2027 once oil-driven inflation fades
Analysts flag $3,940 to $4,000 as a key zone, with central bank buying tending to pick up below $4,000
Gold is likely to retest support near $3,900 an ounce as rising US interest rates and a stronger dollar keep weighing on investment demand, according to TD Securities. In a report published on Tuesday, Bart Melek, the bank’s head of commodity strategy, said the pressure on the metal has further to run before the longer-term bull case can return.
The call came as gold slipped below $4,000 an ounce on Wednesday. That extended a two-day decline after October’s US inflation report came in hotter than expected and cemented bets that the Federal Reserve will raise rates in December. Higher rates raise the opportunity cost of holding gold, which pays no yield. A firmer dollar makes it more expensive for buyers using other currencies.
The note marks a clear shift in TD’s thinking since mid-year. In early July, Melek argued that a break below $3,900 was unlikely as long as an early Fed rate hike remained off the table. That condition no longer holds. With the Fed on a hiking path and futures fully pricing a December move, the floor TD once saw as secure is now the level it expects to be tested. As recently as late October, the bank described gold as stuck in a range between $3,900 and $4,250.
Gold’s recent behavior reinforces the point. Rather than rallying as a haven during the Iran war, it has traded mainly on rate expectations, with oil-driven inflation pushing up bets on Fed tightening. Bullion fell to a one-year low and posted its worst October since 2008, as investors also sold it to cover losses during an equity rout led by tech stocks.
TD has not abandoned its longer-term view. Melek has said gold could climb to record highs above $5,300 an ounce in 2027 once the conflict, and the oil-driven inflation it has fueled, begin to fade, provided long-term support holds.
The key levels are close together. Analysts flag the $3,940 to $4,000 zone as an important near-term area, and some note that central bank buying has tended to pick up when gold trades below $4,000. A decisive break below $3,900 would suggest the rate story still has the upper hand. Holding above it would keep TD’s recovery scenario intact.
This article was written by Eamonn Sheridan at investinglive.com.
