- Even before the recent decline in the US dollar, the gold price continued its sharp upward trend, with gains reaching the $2161 resistance level per ounce, a historic record high for the gold price.
- Overall, the gold prices rise to a record high this week has puzzled many analysts and forced traders to wonder how far it can go.
Will the gold price fall in the coming days?
Weak US economic data and banking tensions have helped drive a 5% jump in bullion prices over the past four trading sessions, with recent gains on Tuesday and Wednesday surpassing the previous high set in December. However, the speed and scale of the move surprised many market watchers, especially given the lack of any major change in expectations for when the Federal Reserve will start cutting US interest rates, which has been the main focus. Certainly, the backdrop looks favorable for gold with geopolitical tensions higher than ever. Gold's performance over the past year has surprised some seasoned market watchers long before the current rally, as prices have remained at elevated levels despite rising real interest rates. Usually, Gold has an inverse relationship with bond yields, but it has received support from strong buying by global central banks and consumer demand in China in particular.
Therefore, is the rise in gold just a flash in the pan, or is the yellow metal just getting started? Here are four key things to watch to determine the direction of the gold price in the coming months:
Real Yields
The primary driver for the gold price over the past year has been the market's anticipation of when the Federal Reserve would begin to lower borrowing costs. Swap markets show a 65% chance of a cut in June, compared to 58% at the end of February. Yesterday, Federal Reserve Chairman Jerome Powell reassured lawmakers that the central bank is not in a hurry to cut interest rates until policymakers are convinced, they have won their battle over inflation. When the Fed eventually pivots, it will reduce the opportunity cost of holding gold, which bears no interest. Real yields in the United States have been declining since last October, but the recent surge in the gold price has far exceeded expectations.
Technical Indicators
The gold price hit a new record level at $2,161.25 per ounce. Therefore, United Overseas Bank Ltd. sees the next important resistance level at $2,167 per ounce. However, for Ronan O'Connell, market analysis head at StoneX Financial Ltd., the gold price is already in overbought territory above $2,115 per ounce. She noted that weak US figures last weekend triggered technical and momentum trading.
Gold Futures Open Interest
The latest COMEX data shows fund managers adding long new positions, leading to gains in gold. This increase in open interest suggests that investors are becoming more optimistic about gold, rather than just closing out existing short positions.
Chinese purchase
Swiss exports to China - usually a good indicator of Chinese demand for gold - nearly tripled in January, as consumers sought to hedge against turmoil in the country's stock market and real estate sector. With the country's largest state-owned lenders cutting deposit rates, putting money in the bank has become relatively less attractive compared to bullion. In addition, China is among the global central banks that buy gold to reduce its dependence on the US dollar. Obviously, China was among the largest hordes of gold last year, as countries from Poland to Singapore diversified their financial reserves by adding the precious metal.
Gold Price Forecast and Analysis Today:
According to the performance on the daily chart, the general trend of the gold price is still upward. Recent gains were enough to push all the technical indicators towards strong levels of saturation with buying. Therefore, it is risky to buy from these peaks, and it is better to think about selling, but without risk and at several levels if the rise continues, as it is natural for it to occur. The nearest resistance levels for gold are currently $2163 and $2175, respectively.
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