In the midst of a stunning performance by markets and investors, a price gap occurred for gold, breaking all expectations to break the pandemic-era gold record level. According to trading, the price of gold XAU/USD jumped to the resistance level of $2,145 per ounce, the highest in the history of gold prices. However, it soon faced a wave of profit-taking and later retreated. Moreover, the factors that strengthen gold are still in place and increasing, and selling will remain opportunities for buying.
Factors behind the latest increase in gold prices and the anticipated upward trend in the upcoming days
With the global economy losing steam and inflation slowing, bond yields have fallen sharply. As, markets offered the expected timing for US interest rate cuts, which in turn served as rocket fuel for gold prices. On the other hand, geopolitical demand was another driving force behind this sharp rise. Thus, the tensions in the Middle East fueled demand for gold as a hedging tool, while direct purchases from China. Also, other central banks to diversify their reserves amid the “new cold war” climate also played a decisive role in raising prices this year.
Meanwhile, the fact that the breakout at the beginning of the week occurred in a weak liquidity environment during early Asian trading further complicates matters and may explain why gold fell again so quickly. However, the broader outlook for gold looks favorable going into next year, as the global economy faces a mild recession and central banks expect to cut interest rates significantly to soften the blow.
Recently, the price of gold rose to a new all-time high as growing expectations for a cut in US interest rates early next year stimulated a buying wave. Overall, the latest phase of gold's rally was stimulated by comments issued on Friday from Federal Reserve Chairman Jerome Powell, which traders interpreted as paving the way for a pivot towards lower US interest rates, which in turn led to a decline in the price of the dollar and Treasury yields.
Furthermore, the yellow metal's strength has been supported by a wide range of factors, from a wave of buying by governments and central banks to geopolitical uncertainty, with 41% of the world's population set to go to the polls next year. Commenting on gold's performance, “Gold is the answer to a lot of things right now — whether that’s continued inflation, interest rate cuts, or uncertainty as very costly wars continue,” said Joe Harmandjian, portfolio manager at Tiberius Group AG.
Historically, the price of gold, XAU/USD, has risen by over 600% since the beginning of the millennium. Despite adjustments for inflation, it remains below the high level of $850 recorded in January 1980, equivalent to over $3000 in today's dollars.
Usually, the yellow metal has an inverse relationship with bond yields, falling as rising interest rates provide a more attractive alternative to gold, which pays no interest, and rising as they fall. Since early October, it has risen about 14%, with Treasury yields and the dollar falling amid growing expectations of a cut in US interest rates. Meanwhile, Swap markets are now seeing more than a 50% chance of a downgrade in March and are pricing in a downgrade in May.
At the same time, some analysts argue that yesterday's price movement was exaggerated. Thus, prices retreated after hitting a record level, trading at $2027 per ounce at the time of writing. Kelvin Wong, Senior Market Analyst at Oanda Asia Pacific Pte Ltd, warned of the short-term risk, suggesting that the sharp early Monday move seemed "largely driven by larger stop-loss orders."
Nevertheless, many investors remained on the sidelines despite the gold rally, increasing the likelihood of further increases as latecomers consider buying in. Gold investors through exchange-traded funds, a key driver of previous bull markets in the metal. Nearby, they have been sellers for most of this year, reducing their holdings by more than a fifth from the highest level in 2020.
Gold Price Forecast and Analysis Today:
Our technical view of the gold price XAU/USD remains unchanged. As the overall trend is still up the psychological resistance of $2,000 per ounce will remain an important catalyst for further bullish control. Moreover, 0If the pressure on the US dollar and Treasury yields continues this week after the release of important US employment numbers. Thus, the gold price could move towards new record highs, the closest of which are currently $2,065, $2,120, and $2,170, respectively. On the other hand, and over the same period, expectations of gold's rise will be negatively affected by a return to the movement towards the support level of $1,985 per ounce.
