Gold, according to some market observers, has the potential to approach the $4,000 per ounce mark. The main drivers are ongoing purchases by central banks – especially from emerging markets – and the prospect of further interest rate cuts by the US Federal Reserve (Fed). This was highlighted by Bart Melek, Managing Director and Global Head of Commodity Strategy at TD Securities, in an interview with BNN Bloomberg. According to him, China and other central banks could still acquire “millions of ounces” to bring the gold share in their reserves closer to the ratios of leading industrialized nations.
Central Banks Remain Drivers of Gold Demand
According to Melek, gold remains only a small component of currency reserves in many emerging markets. For China, he estimates the current gold share at around 6.7% of foreign exchange reserves of approximately $3.7 trillion. Even a doubling to 15% would still be significantly below the ratios of the USA (around 72%) and Germany (almost 70%). In addition to China, other countries – such as Russia and Poland – have recently expanded their holdings. From this starting point, the strategist derives a long-term structural need: reserve diversification programs are typically designed for decades, not for one or two years.
From his perspective, this means a stable demand base for the gold market, which can dampen cyclical fluctuations caused by investor flows. Melek even outlines a scenario in which an accelerated accumulation process in China could drive prices further upwards – in an extreme view, to areas of $6,000 to $7,000 per ounce. He emphasizes at the same time that such a process would be gradual. For investors and observers, the trend is therefore crucial: gold remains an instrument for central banks to diversify away from the US dollar and to hedge against geopolitically turbulent times.
Fed Policy and Yield Curve: Tailwinds for Gold
In addition to central bank demand, Melek points to the monetary policy of the Fed as a decisive factor for gold. The US central bank has completed its tightening cycle and is likely to continue easing towards 2026 – depending on the data situation and inflation. For the current year, he considers one further rate cut, possibly even two, to be possible. If short-term yields fall, holding a gold position becomes cheaper, as opportunity and financing costs (Cost of Carry) decrease. At the same time, a steepening yield curve provides additional relief on the cost side.
On the investor side, the TD Securities strategist observes a return of institutional funds: According to him, holdings of gold-backed ETFs are significantly above the lows of February. Furthermore, systematic and discretionary market participants who missed the recent rally could increasingly build up positions. In combination with higher inflation expectations and a still broad underweighting of gold in many investors’ portfolios, this creates additional demand. For the gold price, this interplay of a more favorable interest rate environment, ETF flows, and central bank purchases is a central theme.
China as a Potential Custodian of Foreign Gold Reserves
Another aspect is adding further momentum to the market: reports that China could offer gold custody services to foreign central banks in the future. Until now, the Bank of England has acted as one of the most important custodians; the precious metal is traditionally stored in London. Melek considers it possible that China is trying to gain importance in this segment – also against the backdrop of geopolitical tensions.
Some emerging markets could therefore have concerns about being able to access holdings stored in London in the event of a conflict – although there are no reliable precedents for this. Nevertheless, the option of depositing gold in China could be interesting for states that are closely linked politically with Beijing or generally want to diversify more. Such a shift in the global custody infrastructure would further increase China’s influence in the gold market and geographically broaden the flows of physical holdings.
Gold Price: between Record Highs and Pullbacks
The recent price trend underscores how sensitively gold reacts to the simultaneity of monetary policy signals and physical demand. Market participants observe, in addition to the Fed’s communication lines, especially reports on central bank purchases and changes in ETF holdings. In the short term, such news can significantly move the gold price; in the medium to long term, the structural factors – reserve accumulation, real interest rate trend, inflation expectations – remain decisive.
For the yellow metal, a clear picture emerges: A potentially continued loose Fed policy lowers holding costs, while central bank demand and selective inflows into ETFs support the market. How strongly these forces will act over the coming quarters depends on the actual interest rate and inflation development in the USA, as well as the pace of reserve accumulation in emerging markets – especially in China. One thing is clear: gold remains a central benchmark for states and capital markets alike, caught between monetary policy, geopolitics, and strategic reserve planning.
