TD Securities Sees Gold Vulnerability Ahead of Rate Hikes

TD Securities has weighed in on the current state of gold prices, forecasting that they may drop to the lower end of their recent range by year's end. The firm points to Federal Reserve Chair Kevin Warsh's hawkish speech at Jackson Hole as a key factor behind this outlook.

The Fed's commitment to returning inflation to its 2% target and its assertion that current financial conditions are not restrictive has led markets to reprice higher odds of rate hikes in both September and December. This, in turn, has lifted short end interest rates and the US dollar, pulling gold back to around $4,450 an ounce.

Despite some recent softness in the US dollar, TD Securities believes that a weaker currency alone is unlikely to provide meaningful support for gold prices while rate hike expectations are rising. The firm notes that US Treasury intervention at the long end of the bond market has eased financial conditions somewhat and contributed to gold's recent strength, but this improvement cannot fully offset the pressure coming from higher front-end rates.

Looking ahead, TD Securities maintains its longer-term bullish call on gold, forecasting prices could reach $5,350 an ounce by the third quarter of 2027. The firm attributes this potential rise in price to inflation stabilizing against a more balanced oil market and higher rates beginning to weigh on aggregate demand.