(Kitco News) - Disruptions in gold’s supply chain as the metal chased higher premiums in the U.S. are starting to ease, and while gold could see some profit-taking in the near term, there is still plenty of uncertainty surging through global financial markets to support prices above $3,000, according to one Canadian bank.
In his latest report on gold, Bark Melek, Head of Commodity Strategy at TD Securities, said that the turmoil in the physical market, which helped to drive gold prices to record highs last month, is starting to ease, which could put some pressure on gold in the near-term.
However, he also added that the correction should be seen as a buying opportunity.
“We judge that the ride to a trading range above $3,000/oz may very well be bumpy,” Melek said. “The tariff-driven loss of risk appetite, along with a slowing or reversing momentum of gold flows into the U.S. as tariffs have become reality, has already sharply lowered the Comex-London differentials and moderated lease rates. This, along with the unplugging of logistical and refining bottlenecks has already forced prices off the highs and will see the yellow metal consolidate at around $2,800-2,850/oz.”
“This, in our view, will represent a buying opportunity,” he said.
Despite a potential correction, TDS expects that gold will break above $3,000 an ounce this year.
“Above target U.S. inflation, driven by tariffs, wage pressures, restrictive migration policies, along with a Fed that will eventually start to add monetary accommodation to fulfill its maximum employment mandate as the economy moderates, should see the yellow metal move into a sustained trading range above $3,000/oz as 2025 unfolds,” he said.
Along with a stagflationary environment, as inflation remains elevated and growth slows, Melek said that America’s growing debt will also provide support throughout the year. Although the government has embarked on a slash-and-burn approach to cut spending, Melek argued that it won’t be enough if politicians extend tax cuts.
“The total U.S. deficit is projected to remain roughly unchanged at $1.9T (6.2 percent of GDP) in fiscal year 2025. The U.S. deficit would likely grow even larger if President Trump extends his previous tax cuts and introduces new reductions. There is also a risk that tariffs and higher-than-expected interest rates may slow the economy and drive deficits much higher than the CBO currently estimates,” he said. “Aside from the current DOGE program, USAID, and proposals to eliminate the Department of Education, there are no real attempts to cut spending on mandatory components of the budget, which comprise the bulk of U.S. government outlays.”
Although gold could see some selling pressure, Melek said that consistent central bank demand has put a solid floor in the marketplace. He noted that central banks have bought more than 1,000 tonnes of gold in each of the last three years.
“This buying spree coincides with a trend among central banks globally to diversify their holdings to reduce their reliance on the U.S. dollar,” he said. “The last three years have recorded the highest level of net purchases of gold on record dating back to 1950, including since the suspension of dollar convertibility into gold in 1971.”
