(Kitco News) – Gold prices may see a near-term correction as investors reduce their long positions, but persistent inflation and geopolitical instability will ensure that the yellow metal will not see a rout in 2025, according to commodities strategists at TD Securities.
In their 2025 Commodities Outlook, TD Securities analysts said that while the Fed’s cutting cycle, geopolitical uncertainties, and strong central bank buying propelled gold to record highs this year, fund flows were less supportive.
“There are no shortages of compelling macro narratives that have chased the melt-up in gold over the months heading into US elections,” the analysts wrote. “Unfortunately, many of these narratives have not been factually supported by sustained flows: Macro funds have been 'max long' since August — this claim has since been corroborated by the COT report remaining largely unchanged since; Shanghai traders have sold nearly 35t of notional gold over the last weeks in response to an improving opportunity-set for domestic capital; buying activity was only observably recorded in marginal traditional and Chinese ETFs inflows; there were nearly no money manager directional shorts remaining; and the rise in USD and US rates do not bode well for Western flows in the near-term.”
They noted that fund flows were actually weak heading into the Nov. 5 election in the United States, even as SGE gold withdrawals were at their lowest levels since 2020.
“Typically, this would point to large-scale OTC buying activity, but LBMA clearing data did not corroborate this view,” the analysts said. “Central bank buying activity — both reported and unreported — has slowed considerably over the prior several months. This puzzle pointed to 'hoarding behavior', likely tied to the US election. The event risk has now passed, leading to large-scale selling activity.”
“Our suite of advanced positioning analytics suggests that macro funds were actually the first to hit the bid on election night, now having liquidated nearly 60% of their extreme positioning in just a few weeks' time,” they added. “While this fueled subsequent CTA selling activity, algo liquidations have remained modest at best.”
TD believes that the main drivers of gold's record-breaking rally were “expectations of a rapid decline in the fed funds target rate, US political uncertainty, geopolitical risks, and strong buying activity by central banks and investors.”
“The impact of these supportive factors on gold has now likely peaked, with rate cut projections having been sharply reduced in the aftermath of the US elections as the GOP painted the American political map red, raising inflation risks on the horizon at a time when economic growth remains firm,” the analysts warned. “Given the change in the interest rate trajectory, a firm USD, and a slower uptake of physical metal by central banks, coin and bar investors, the market may very well be ready to consolidate the recent gains.”
Under these circumstances, TD Securities said they would not be surprised to see some profit taking from traders with significant long gold positions as they look ahead at higher bond yields, strong equity markets, and a changing geopolitical environment. “Significant macro fund liquidations may have already hit the tapes, limiting the scope for subsequent selling activity, but the macro outlook no longer favors extreme long positioning given lower odds of an 'overly easy' policy on the horizon,” they wrote.
CTA liquidations have also remained low, which limits the ability of future buying programs to support prices further. “China's ‘whatever it takes’ moment may not be a 'bazooka' for global growth, but may be sufficient to energize animal spirits in asset markets, diminishing gold's allure as a safe-haven,” the analysts said. “In turn, gold will be challenged to pursue its record-breaking streak.”
“While there are risks of a correction, as the cost of carry remains higher for longer and record prices limit demand, a rout is not expected,” they said. “There will be plenty of uncertainty to persuade money managers to own some gold as a hedge, which will include questions surrounding Fed independence under the new GOP regime in Washington. For the first time in decades, the US President-elect brings diverging ideas about whether the Fed should remain independent in setting monetary policy.”
“While we see low odds that President Trump would be able to remove Chair Powell from office, he may be able to appoint a more dovish Fed Chair after Powell's term ends in May 2026,” the analysts added. “The notion of a "shadow Fed Chair" further risks threatening the Fed's independence.”
TD Securities’s detailed forecasts have spot gold trading at $2,675 per ounce in the first quarter of 2025 and topping out at $2,700 in Q2, before dropping to $2,625 in both Q3 and Q4. Their outlook for the following year predicts more price moderation, as they see the yellow metal starting 2026 trading at $2,600 throughout the first half and $2,525 in the second half.
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