TD Securities warns gold may drop to $4,200 near term, $5,350 target by 2027

TD Securities separates two typically correlated forces — dollar weakness and gold strength — and argues they have temporarily decoupled. The dominant driver now is the market's re-evaluation of Fed policy, especially after the hawkish tone from Kevin Warsh at Jackson Hole, according to the firm.

This distinction holds significance for traders who might assume a softer dollar automatically supports gold. TD's view suggests the rate expectations channel currently dominates the currency channel. The reference to Treasury intervention at the long end of the bond market easing financial conditions, though insufficient to offset front-end rate pressure, indicates a more granular yield curve analysis than a simple dollar index correlation would offer. For gold positioning, the practical implication is a two-speed outlook: near-term vulnerability toward the lower end of the 4,200-4,700 range, contrasted with a maintained long-term bullish target of 5,350 by Q3 2027, meaning the near-term weakness is seen as a repricing phase rather than a reversal of the structural bull case.

--- TD Securities acknowledges that gold's near-term decline is genuine but does not signal the end of the long-term bullish outlook, and a weaker dollar by itself will not halt the slide.

Key points:

• TD Securities stated that Fed Chair Kevin Warsh's Jackson Hole speech was distinctly hawkish, reiterating the Fed's commitment to achieving its 2% inflation target and noting that current financial conditions are not restrictive.
• According to TD, markets have revised up the probability of Fed rate hikes in both September and December after the speech, pushing up short-term rates and the dollar, which brought gold down to around 4,450 dollars per ounce.
• TD noted that despite recent dollar weakness, the Fed's strong reaffirmation of its price stability mandate means the dollar debasement trade narrative is likely to be set aside by markets in the near term, so a weaker dollar by itself is unlikely to provide significant support for gold.
• TD observed that gold's recent gains were partly aided by US Treasury intervention at the long end of the bond market, which slightly eased financial conditions, but noted this cannot completely offset the pressure from rising short-term rates.
• TD sees gold possibly moving toward the lower end of its recent 4,200-4,700 dollar per ounce trading range by year-end, while keeping a long-term bullish target of 5,350 dollars per ounce by Q3 2027.
• TD stated that the long-term bullish scenario relies on inflation stabilising together with a more balanced oil market and weaker demand, allowing the Fed room to reverse some tightening to support its employment mandate, with central banks, institutional investors, and physical retail buyers identified as the demand base that would lift gold prices in that case.

TD Securities maintains that gold still has further downside risk in the near term, and the recent dollar weakness is unlikely to provide a meaningful offset.

The TD perspective revolves around Kevin Warsh's Jackson Hole speech, which TD described as distinctly hawkish. Warsh reiterated the Fed's commitment to bringing inflation back to 2%, stated that inflation has not convincingly slowed, and claimed current financial conditions are not restrictive. In response, markets increased the likelihood of rate hikes at both the September and December Fed meetings, a change from earlier expectations, which boosted short-term rates and the dollar. This combination drove gold down to around 4,450 dollars per ounce.

TD argued that despite recent dollar weakness, gold's near-term downside risk persists because the Fed's strong reaffirmation of its price stability mandate and the view that monetary policy is the most effective tool means the market is likely to set aside the dollar debasement trade narrative for now. In practice, a weaker dollar alone is unlikely to significantly support gold prices while rate hike expectations are rising. TD also cited US Treasury intervention at the long end of the bond market, which has slightly eased financial conditions and contributed to gold's recent strength, but noted that this improvement cannot fully offset the pressure from higher short-term rates. Consequently, TD Securities expects gold could drift toward the lower end of its recent 4,200-4,700 dollar per ounce range by year-end.

TD noted that although Warsh's hawkish tone has intensified slightly compared to July, it has not altered gold's medium- to long-term rationale. The firm stated that the economy remains fairly resilient and inflation is still above target, with markets now pricing in rate hikes for both September and December. However, TD argued that once inflation stabilises, supported by a more balanced oil market, and higher rates start to weigh on aggregate demand, the Fed will become more confident in reversing some tightening to meet its maximum employment mandate, a change that would support gold prices.

Under this scenario, TD Securities maintains its long-term bullish outlook on gold, forecasting prices could reach 5,350 dollars per ounce by Q3 2027. The firm added that central banks, institutional investors, and physical retail buyers are likely to drive this move, continuing to view gold as an attractive portfolio diversifier and potentially entering the market at more favourable entry points. Overall, TD Securities frames the current phase not as a loss of gold's upward logic, but as a repricing period dominated by shifting policy expectations, with the Fed's September and December meetings, inflation data, and further dollar and real rate movements set to determine whether gold stays within its 4,200-4,700 dollar range.