Gold stages a solid recovery from its lowest level since April 2020. Nonetheless, the upside potential for the yellow metal seems limited amid the prospects for a more aggressive policy tightening Federal Reserve, strategists at TD Securities report.

Risk of capitulation growing for gold

“Gold is seeing some relief as the UK's plan to buy long-end Gilts sees yields weaken, while the elevated rates volatility of late has also seen Fed pricing reduced to a terminal rate of 4.47% vs 4.7% just days ago. Nonetheless, we still see the risk of capitulation growing for the yellow metal.”

“Rates markets are pricing the potential for higher interest rates to persist for some time, and a steady stream of Fedspeak is likely to hammer this point home. In this sense, our analysis suggests gold prices could still have further to fall in the next stage of the hiking cycle. Indeed, the increase in inflation's persistence suggests that a restrictive regime may last longer than historical precedents, which argues for a more pronounced weakness.”