The gold market is currently in a holding pattern as it awaits Friday’s release of the Personal Consumption Expenditures (PCE) Index, a key inflation metric. Analysts from TD Securities highlighted in a recent report that gold prices are sensitive to the timing of Federal Reserve interest rate cuts, with potential downside risks if inflation exceeds expectations.
Bart Melek, Head of Commodity Strategy at TD Securities, emphasized that a significant increase in inflation or stronger-than-expected US economic data could lead to a drop of over $100 in gold prices. However, any weakness is expected to be temporary, as TD Securities foresees gold prices rebounding later in the year.
Melek projected optimism for gold, anticipating that clarity on the timing and scale of Fed rate cuts will attract speculative and ETF buying, driving prices upwards. He predicted an average price of $2,475 per ounce for Q1-2025, with potential peaks reaching $2,700 per ounce.
Despite recent volatility caused by the People’s Bank of China’s cessation of gold purchases after an 18-month spree, Melek expressed confidence that China’s appetite for gold remains robust. He noted that even with recent purchases totaling 8 million troy ounces since 2023, China’s gold reserves represent only 4.9% of its foreign exchange (FX) reserves, suggesting ample room for further acquisitions. A modest increase to 10% of FX reserves could necessitate an additional 70 million troy ounces of gold, while a 25% allocation could require an additional 290 million troy ounces.
Melek also highlighted broader global trends, noting that other central banks are likely to follow China’s lead in diversifying away from the US dollar amid growing government debt and geopolitical tensions.
In conclusion, while awaiting the Fed’s decision on interest rates and monitoring inflation data, the gold market anticipates both short-term volatility and long-term growth opportunities driven by central bank demand and strategic buying trends worldwide.
