How sustainable is the flood of capital finding its way into gold? In the opinion of strategists at TD Securities, the yellow metal is set to see fewer investors willing to buy the safe-haven asset.
The right tail is narrow in gold
“Thus far, the gold's prices have remained extremely resilient against an aggressively hawkish Fed, as a protracted war in Ukraine simultaneously raised both geopolitical uncertainty and inflation risks, thereby fueling demand for the yellow metal as a safe haven. This trend has also likely been exacerbated by the concurrent decline in global equity and bond prices, which is consistent with fears that Treasuries may be less potent havens in a higher-inflation regime.”
“While the Fed is signaling its intent to combat inflation by reaching policy neutrality by year-end, and to start an aggressive QT regime, outflows from gold markets have been scarce as participants are happy to retain some optionality against the Fed's stated plan amid growth concerns.”
“Safe-haven flows are likely to subside as the fear trade dissipates, leaving fewer participants left to buy gold. Comex shorts have also largely been wiped out, further removing some fuel for price strength. In this context, the right tail is narrow in gold.”