TD Securities’ Head of Commodity Strategy Bart Melek highlights that Gold recently broke below $4,000/oz as higher US rates and a firmer Dollar weigh on the metal. Oil shock–driven inflation and a restrictive Federal Reserve (Fed) stance could push prices a few hundred dollars below long-term support near $3,900/oz before a potential recovery toward new record highs above $5,300/oz next year.

Oil shock and Fed policy weigh on bullion

"Higher rates across the curve may continue to pressure the yellow metal below the current long-term support level of $3,900/oz. The pullback is likely to remain driven by Strait of Hormuz–related oil and inflation shocks, which have prompted the market to price in higher policy rates later in the year."

"We believe Brent could still move into the $90–110/bbl range, lifting inflation expectations and reinforcing a restrictive policy bias, thereby increasing carry and opportunity costs for gold holders."

"There is a path to $5,350+ once the conflict and oil-driven inflation pressures fade. A later pivot toward the Fed’s maximum employment mandate, alongside lower yields and a softer USD, plus renewed investor and central bank demand, could reignite the bull trend following a potential test of the $3,900/oz long-term support level."

"Fears that inflation expectations may become unanchored continue to loom large, and with it the possibility of significant CTA selling, which could easily drive the metal a few hundred dollars below its long-term support level near $3,900/oz. The risk is that this oil shock persists into the fall, which would likely prompt the market to price in additional rate hikes."

"If long-term support holds as expected, gold is well positioned to reach new highs in a post–Iran war environment. Once the oil market begins to stabilize and inflation signals ease, we see the yellow metal moving back toward $5,300+ territory by mid-next year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)