Gold: Conflict path drives next leg – TD Securities

TD Securities' Senior Commodity Strategist Daniel Ghali frames Gold within what he calls the Hegemon trade, tied to perceptions of US power and fiscal sustainability. He argues that a strong currency-defense phase in the Iran war is currently negative for Gold as nations prioritize energy and stability. However, an unfavorable ceasefire or abandonment of currency defense could trigger the next leg of Gold’s bull market via accelerated reserve diversification.

Hegemon trade shapes bullion outlook

"Last year, the debasement trade captured the zeitgeist, most evidently in precious metals."

"Both ultimately relate to the USD's store-of-value function."

"Perceptions of power will play a more critical role in how foreign creditors, central banks, and broader markets assess the hegemon's fiscal sustainability, linking geopolitical staying power to its ability to defend this exorbitant privilege."

"The currency defense stage of this conflict is bearish gold as long as perceptions of complete victory are rising, ultimately deterring gold purchases as nations prioritize energy imports, economic and currency stabilization over reserve diversification."

"Conversely, abandoning the currency defense stage (including via an unfavorable ceasefire) could catalyze the next leg of gold's bull market, amplifying reserve diversification in favor of gold, which captures the lost 'store-of-value' status of US debt, with additional focus on the debt overhang."