(Kitco News) – Gold has a very good chance of reaching $4,000 per ounce in short order as China and other emerging market central banks will need to buy millions more ounces to reach the reserve ratios of leading developed nations, according to Bart Melek, managing director and global head of commodity strategy at TD Securities.
“It’s a great time to be in the precious metals business,” Melek said in an interview with BNN Bloomberg on Tuesday. “I am on record as saying that $4,000 gold is a real possibility. The main reason is the Federal Reserve is continuing to loosen monetary policy as we move into 2026. We’re likely looking at one more cut this year, potentially two, even though the Fed chair didn’t give us complete confirmation [during his Tuesday speech].”
Melek said he’s also seeing renewed interest in gold-backed funds from ETF investors, with holdings now well off the February lows. “Proprietary and discretionary traders, many of whom missed this rally, are likely to come in as well,” he added. “The steepening yield curve is reducing the cost of carry, inflation is expected to move higher, and investors who are underinvested in gold are keen to reposition.”
He explained that the Fed’s rate cut – and expectations of more cuts to come – are making it cheaper to borrow money to enter new gold positions. “With short-term yields dropping, it’s cheaper to hold a gold position,” he said.
Asked about his latest assessment of central bank gold purchases – one of the key pillars that has sustained the gold price rally as the market’s interest has ebbed and flowed – Melek said the yellow metal is still a small percentage of the reserves of many nations, including China.
“Gold accounts for about 6.7% of China’s reserves, while its foreign exchange reserves are about US$3.7 trillion,” he noted. “Even if China doubled that share to 15%, it would still be far below America’s 72% or Germany’s roughly 70%. Russia holds a lot as well, and other countries such as Poland are adding reserves.”
Melek said this means “there are literally millions of ounces still to be purchased.”
“These programs take decades, not just a year or two,” he added. “If China tried to accelerate, prices could move toward $6,000 to $7,000 an ounce. But this will be a gradual, ongoing process.”
Regarding the recent reports that China is now offering to safeguard other countries’ gold reserves to increase its influence in the market, Melek said it’s a real possibility.
“China would act as custodian,” he said. “At present, the primary custodian for central banks is the Bank of England, with gold stored securely under the Thames. But China is capitalizing on uncertainty in global relations.”
“Some emerging-market officials worry that if they fall out with Western democracies, they might not be able to access gold stored in London,” Melek explained. “There is no evidence that this has ever happened, but in today’s turbulent world, some countries may prefer to diversify and place holdings in China, particularly if they are aligned with Beijing.”
Gold rose as high as $ 3,779.34 per ounce in overnight trading, but prices have pulled back somewhat during the early stages of the North American trading session.
Spot gold last traded at $3,754.19 per ounce for a loss of 0.27% on the daily chart.
