Gold has slipped below $4,000/oz as higher US yields and a firmer dollar weigh on bullion. TD Securities sees further downside pressure if Strait of Hormuz-related oil disruption lifts inflation expectations and keeps the Federal Reserve restrictive, with the market pricing higher policy rates later this year. In that scenario, prices could test long-term support near $3,900/oz and, with the prospect of CTA selling, trade a few hundred dollars below that level as carry and opportunity costs rise.
Oil assumptions remain central to the outlook, with Brent framed in a $90–110/bbl range that could reinforce tight policy settings and extend the pullback into the autumn, potentially bringing additional rate-hike pricing. TD Securities also sketches a recovery path if conflict-driven inflation fades and the Fed pivots towards its maximum employment mandate, allowing yields to fall and the USD to soften. Under those conditions, renewed demand from market participants and central banks could lift gold towards new records above $5,300/oz, with a timeframe of mid-next year and a threshold cited at $5,350+.
Short-Term Pressures and Downside Risks
We see gold facing continued pressure after breaking below $4,000 an ounce, driven by high interest rates and a strong dollar. The ongoing oil shock related to the Strait of Hormuz is keeping inflation expectations high. This situation forces the Federal Reserve to maintain its restrictive policy, which is not good for gold in the short term.
Recent data supports this cautious view, with the latest Consumer Price Index (CPI) for May showing inflation holding at a stubborn 5.2%, while Brent crude futures remain elevated at $105 per barrel. The Fed funds rate is currently at 6.00%, making the cost of holding a non-yielding asset like gold very expensive. We expect this environment to push gold down to test its long-term support near $3,900 an ounce.
In the coming weeks, we believe the best approach is to anticipate further weakness, possibly even a sharp move a few hundred dollars below the $3,900 level. Derivative markets show a notable rise in demand for put options with strikes around $3,800 for the August expiry. This indicates that traders are positioning for a continued slide as automated trend-following funds (CTAs) could accelerate the selling.
For a short-term trade, we would consider buying puts or using bear call spreads to capitalize on this expected downturn while managing risk. The current market conditions do not favor holding outright long positions. The risk of the oil shock lasting into the fall could even prompt the market to price in additional rate hikes, adding more weight on the metal.
Strategic Long-Term Opportunities
This pattern is reminiscent of past cycles where Fed tightening initially hammered gold before an eventual policy shift led to a major rally. We view the current weakness as a temporary, event-driven pullback. Any significant dip below the $3,900 support should be seen as a strategic opportunity to build a long-term position.
For those with a longer time horizon, this is the time to plan for the eventual recovery toward new highs. We are looking at accumulating long-dated call options for mid-2027 with strikes above $5,000. Once the oil market stabilizes and the Fed pivots, we expect a strong rebound as lower yields and a weaker dollar fuel the next leg of the bull market.
