(Kitco News) - Gold’s definitive move above $4,000 an ounce could create some volatility in the marketplace, but there is very little to stop this bull market’s momentum, according to one market analyst.
In his latest note on gold’s rally, Bart Melek, Head of Commodity Strategy at TD Securities, said that given the speed and magnitude of gold’s rally, there is a risk that some investors will take profits in the near term. He noted that since gold’s breakout in August, prices have rallied $670 an ounce, rising more than 20% in two months. At the same time, with spot gold last trading at $4,043.80 an ounce, prices are up more than 50% since the start of the year.
“The yellow metal looks overbought, which suggests that anything that may question the speed of the Fed's easing, or an increase in volatility, could generate a robust downside. This could see a significant unwind of the late-summer rally in the relative near term,” Melek said in his report.
Looking at the growing downside risks, Melek said that given gold’s gains, there is potential for prices to fall as low as $3,600 an ounce.
While risks for a correction are building, Melek also sees lower prices as a buying opportunity, as he expects gold’s uptrend to remain intact through the first half of next year.
“We expect average price to reach a new record north of $4,400/oz in the first six months of 2026, as the Fed eases into a higher inflation environment, official sector keeps buying and discretionary funds again position long,” he said.
Looking through near-term volatility, TD Securities forecasts gold prices to average around $4,250 an ounce next year.
While broad central bank gold demand has created long-term value in the gold market, TD Securities said that momentum is now being driven by investment demand as the Federal Reserve restarts its easing cycle.
“Money managers who likely missed much of the early part of this year's rally, due to their discomfort of getting long while short-term rates were high, have now moved into the yellow metal through the late summer, as their carry costs were expected to drop along with the Fed's renewed enthusiasm to ease,” he said.
Not only is the Federal Reserve looking to cut interest rates as inflation remains elevated, but Melek said there is a risk that growing political pressure will force the central bank to ease rates more aggressively than expected.
“The concerns surrounding Fed credibility are raising speculation that there could be de facto partial monetization of U.S. debt, which would suppress real yields as inflation runs above target,” he said.
Meanwhile, TD Securities expects that central banks, led by China, will continue to diversify away from the U.S. dollar and into gold. Even after China’s aggressive purchasing program since 2022, Melek noted that the central bank’s gold reserves represent about 7.6% of total reserves.
“There is much more room for China to grow its gold holdings, when compared to the U.S.'s nearly 75% share,” he said. “At current prices, a 10% increase in Chinese FX gold translates to a purchase of some 2,600 tonnes. This suggests that if China truly is diversifying from USD, its purchasing program will take many years.”
