Gold markets have failed to price the implications of a sustained period of restrictive interest rates. Therefore, economists at TD Securities expect the yellow metal to remain vulnerable.
Odds of a major capitulation event grow with every tick lower
“Historical analogs suggest that periods in which market expectations for the real fed funds rate were above estimates of the natural rate of interest were accompanied by a persistent underperformance in gold prices. In turn, while gold prices may now have accurately captured the expected level of interest rates, they are not reflecting the implications of a sustained period of restrictive policy.”
“We see odds of a major capitulation event growing with every tick lower in gold prices, which could coincide with a break below a multi-decade uptrend in the yellow metal near $1,675.”