XAU/USD: TD Bank expects gold to climb to $1600/ounce

In a recent note, TD Securities explained why gold could jump $100 higher than its current position.

For those who want more clarity on gold, the bank invites you not to turn to the Fed for now, but rather to the fall in US bond yields, which investors have fled most of this year to take refuge in safe havens such as gold.

Bart Malek, the bank's leading Strategy Officer says:

"Some $15,000 billion of high-quality paper is generating negative returns and downward pressure on interest rates in the US as traders actively seek better returns.

The global economy is slowing down, weighed down by trade and recent policy tightening, and Germany is heading into a technical recession, whether the US and China sign an agreement or not.

It is also likely that after exceeding expectations since the the beginning of summer, we are at a temporary peak on Gold, as markets have probably adjusted their expectations too positively and we are now entitled to be disappointed in data."

$1,600 remains a possible objective

Although long positions in gold would do well to ignore the Fed's conflicting signals on inflation and the economy, disappointing data could still push the growth-sensitive Fed to cut rates again at the end of the year and beyond.

TD believes that:

"Fundamentals indicate a strengthening of gold. $1,600 will be a possible objective when attention shifts from headlines to fundamentals."

Over the past seven weeks, gold futures prices have held remarkably high above $1,500, falling to $1,499 and below in two cases, on 10 and 13 September.

On the other hand, futures contracts reached three-week highs of $1,543.30 a week ago, setting the other side of the $1,550 range.

The Fed could reduce its rates again before the end of December

Gold could outperform in the final quarter, ending the year in the top range of $1,600 or higher if the Fed returns to more aggressive easing at its October and December meetings.

If this momentum continues until next year, gold could even break the unprecedented highs of more than $1,900 it reached in US dollars in 2011. Gold has already reached record highs in all currencies that count this year, except the US dollar.

TD's outlook is almost similar, with further rate cuts in the United States well into 2020, given the weak economic conditions it expects and the Fed's tendency to formulate "a by the numbers policy... that suggests dovish action".

Some, such as Windsor Brokers analyst Slobadan Darvenica, still predict that gold could break below $1,500 in the short term.

According to Darvenica:

"The recovery needs to be extended and ends above $1,513 to signal a higher basic training at $1,500 and a trend reversal. Be careful, break through $1,500 would potentially mean a plunge to about $1,487."

XAU/USD hourly chart