(Kitco News) - Gold's recent correction has likely run its course as the key macro headwinds that pressured the precious metal are beginning to fade, according to one Canadian research firm, which argues that real interest rates have likely peaked and the U.S. dollar will eventually turn from a headwind into a tailwind for bullion.
After establishing a neutral position in Spring, Commodity analysts at BCA Research now see attractive value and are recommending investors start accumulating gold with a stop-loss at $3,900 an ounce.
"The worst of real rates' headwind to gold is likely behind us," the firm said in its latest report, adding that while geopolitical risks tied to the Middle East could still create short-term volatility, its base case is for U.S. real rates to remain broadly stable over the coming months, helping gold establish a bottom.
Speaking with Kitco News, Roukaya Ibrahim, chief commodities strategist at BCA Research, said investors should focus less on inflation and more on the outlook for real yields.
"The recommendation to buy now basically embeds that real rates and the U.S. dollar are not going to rise further from here, and that headwind is already gone," she said, noting that gold has held the $4,000-an-ounce level despite recent macro headwinds.
BCA's report argues that gold has returned to trading primarily as a macro asset after several years during which central bank buying overwhelmed traditional market drivers. The research firm believes real rates and the U.S. dollar have once again become the dominant forces determining bullion prices, while central bank purchases now provide a floor under the market rather than acting as the primary catalyst for further gains.
Although markets have priced in additional Federal Reserve tightening, Ibrahim said she sees little risk that policymakers become more hawkish than current expectations.
"Even if the Fed does hike, I don't see them hiking by more than what's already priced in," she said. "The odds of that are quite low" unless oil prices experience a significant and sustained surge that pushes inflation expectations materially higher.
That view underpins BCA's bullish stance on gold. Ibrahim said gold does not require imminent rate cuts to rally—only confirmation that the peak in real yields is already behind the market.
"The headwind from opportunity costs is going to ease, and it's going to turn into a tailwind," she said. "Not because the U.S. economy is going to crack, but because the tightening is already priced in."
BCA also pushes back against the common perception that gold is primarily an inflation hedge. Instead, the firm argues that inflation only benefits bullion when it undermines confidence in the Federal Reserve and suppresses real yields.
"Gold's ability to act as an inflation hedge is overstated. Real rates, rather than inflation, determine gold's performance," the report said. As long as inflation expectations remain well anchored and the Fed maintains credibility, higher inflation initially weighs on gold by pushing real yields higher.
Even if another oil-driven inflation shock emerges, Ibrahim expects any rise in real rates to prove temporary.
"If we do get a price spike and inflation spike, then probably very quickly the attention is going to shift from it being an inflation story to being a growth story," she said. That transition would eventually cap the Fed's hawkishness and establish "a bottom for gold prices."
The firm also sees longer-term support coming from structural forces, including reserve diversification away from the U.S. dollar and persistent central bank buying. While BCA believes the pace of official-sector purchases has likely peaked, it argues that ongoing buying continues to justify elevated gold prices and should prevent a return to 2022 price levels absent a shift by central banks to become net sellers.
Over the longer term, BCA also expects the greenback to weaken as structural pressures build.
"The greenback will shift from being a headwind to a tailwind to the yellow metal," the report concluded.
