Gold prices have recently come under pressure, slipping below the $4,300 per ounce mark. A resurgent dollar, rising US Treasury yields, and the Federal Reserve's resumption of interest rate hikes have all increased the carrying cost of holding the precious metal. However, Ryan McKay, Senior Commodity Strategist at TD Securities, suggests that the downside for gold prices may be limited, arguing that the foundation for the next leg higher is currently being built, with expectations for the metal to reclaim the $5,000 per ounce level in 2027.
"The moment for gold's next upswing is arriving," McKay noted. "This yellow metal has demonstrated its resilience in the face of Fed rate increases, and with investor and central bank interest growing once again, gold appears poised to challenge prices above $5,000 per ounce in 2027."
Interest Rate Pressure Persists, Yet the Gold-Rate Relationship is Shifting
Traditionally, rising real interest rates diminish the appeal of gold, which yields no interest. But McKay argues that the conventional link between gold and rates has recently undergone a transformation. Historically, gold prices have also climbed during periods when real rates were rising. TD Securities believes gold can still attract investment demand when geopolitical risks, de-dollarization, currency depreciation concerns, deteriorating fiscal conditions, and inflation risks dominate market focus.
McKay also pointed out that the market has already priced in expectations for three more Fed rate hikes. If these subsequent hikes are not fully delivered, gold could gain further upside momentum. Another factor supporting this view is that speculative positioning in the gold market remains at a relatively low level. McKay noted that since June, autonomous macro investors have been rebuilding net long positions, with bullish speculative positioning gradually improving. Fresh geopolitical worries, stronger central bank demand, and investor doubts about the Fed's ability to control inflation initially drove capital back into gold. More recently, US fiscal policy and currency depreciation risks have emerged as new focal points.
TD Securities estimates that autonomous investor positioning is still roughly 30% below its 2022 peak and 50% below what it estimates to be the 2016 historical high. This implies that if investment demand continues to recover, the market retains ample room to absorb further gold.
Western investment demand has already shown signs of improvement. TD Securities estimates that global gold ETFs have accumulated approximately 6.3 million ounces since July, with little visible indication that demand is cooling due to the Fed's renewed tightening of monetary policy. "While this reading of capital flow strength has indeed improved, we are still in the very early stages of what a new upswing might look like," McKay said.
Central Bank Demand Also Provides Support
Based on customs data, trade flows, and inventory discrepancies, TD Securities estimates that global central banks are purchasing nearly 70 tonnes of gold per month on a three-month moving average basis. McKay believes official sector buyers may be increasingly inclined to buy on dips, adding to their gold reserves at or even below current price levels.
China remains a significant source of demand. Chinese gold ETF inflows continue, while the net gold positioning of the largest trader on the Shanghai Futures Exchange is near the highest level since TD Securities began tracking it in 2017.
BMO: Physical Demand is Also Starting to Take Over
Another institution, BMO Capital Markets, is also observing an improvement in gold demand. In its latest precious metals report, BMO commodity analysts noted that investors continue to use gold as a hedge against currency depreciation risks and concerns over US fiscal sustainability. Meanwhile, signs of strengthening global physical demand are also emerging.
"Physical demand appears to be firming, with local market discounts in India narrowing amid resilient wedding-related demand, while Chinese imports, ETF buying, and futures activity all point to healthy underlying investment demand," the analysts stated.
BMO highlighted that since last week's Fed meeting, both the dollar and 10-year Treasury yields have moved notably higher, yet gold has managed to remain relatively stable between $4,300 and $4,400 per ounce. BMO Economics expects the Fed to deliver another 25-basis-point rate hike by year-end. Even so, analysts argue that gold's resilience to higher rates further demonstrates the weakening of its traditional relationship with bond yields.
"Nevertheless, gold's robustness continues to underscore the growing disconnect between gold and opportunity costs, with speculative and official sector demand providing the main offsetting forces," the analysts said.
BMO noted that ETF inflows are also reinforcing this trend. Global gold ETFs attracted $4.2 billion in inflows over the past week, with total holdings nearing levels seen before the Middle East conflict. Among these, North American-listed funds saw inflows of $2.2 billion, European funds $1.1 billion, and Chinese funds $637 million. BMO believes this broad-based inflow reflects investor concerns over currency depreciation and the fiscal sustainability of the US government.
Physical consumption is also showing improvement. India, the world's second-largest gold consumer market, continues to exhibit resilient demand despite record-high prices, as the festive and wedding season approaches. Consumers are still purchasing gold, but are increasingly shifting toward lighter-weight jewelry. BMO data shows that the discount of Indian gold relative to London prices has narrowed by $20 per ounce over the past two weeks.
The Chinese market is also providing physical demand support. BMO reported that China's net non-monetary gold imports rose 48% year-on-year in August to 124.5 tonnes. Although the growth rate has slowed from the second quarter, cumulative imports through August have already exceeded the full-year total for 2025. Domestic investment activity in China also remains robust.
BMO noted that as of August, Chinese gold ETFs had added approximately 44 tonnes, while average daily trading volume of gold futures on the Shanghai Futures Exchange rose 36% month-on-month to 396 tonnes per day. Additionally, net long positions held by the top 20 market participants increased by 37 tonnes from July to 154 tonnes, further evidence of strong domestic investor participation.
In the near term, BMO remains relatively cautious on gold. The bank lowered its forecasts in June, now expecting an average gold price of $4,625 per ounce in the second half of 2026, but still projects the metal to reclaim the $5,000 level in the first quarter of 2027. Going forward, investors will be watching US-China talks and next week's core Personal Consumption Expenditures (PCE) inflation data. BMO believes trade progress could influence market assessments of tariff-driven inflation and global economic growth, while the inflation data will provide fresh signals on whether further Fed policy tightening is necessary.
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