Traditionally viewed as a safe haven during uncertain times, gold’s recent price surge coincides with heightened geopolitical tensions in the Middle East following a surprise attack by Hamas on Israel. Typically, a robust dollar tends to exert pressure on precious metal prices, given their US dollar denomination. The US dollar index has strengthened by about 6% since early July.
Highlights:
- Gold Surges: Gold futures rose by 0.5% on Monday, hitting over $2,013 per ounce, marking a six-month high and continuing a two-week upward trend.
- Optimism for New Highs: Analysts and traders are optimistic that gold could surpass its previous peak of $2,074.88 from August 2020, with $2,050 seen as a critical breakout level.
- Factors Driving Gold: Factors like escalating geopolitical tensions, stable dollar amid rising rates, and investor interest due to falling real rates and ongoing conflicts contribute to gold’s appeal.
- Concerns on Demand: Despite positive trends, signs of reduced demand in key markets like China and India emerge due to near-record prices impacting retail demand.
- Mixed Outlook: While certain drivers like investment buying and central bank acquisitions are strong, high prices might undermine consumer demand, posing uncertainty for gold’s sustained gains.
Summary:
Gold prices surged to a six-month high, buoyed by optimism of surpassing previous peaks. Factors like geopolitical tensions and investor interest propelled this rise. However, concerns about reduced demand in major markets due to high prices cast uncertainty on sustained growth. While investment and central bank activities remain strong, the future of gold’s gains is less assured amidst wavering consumer demand.
Gold futures surged by 0.5% on Monday, hovering above $2,013 per ounce, marking a six-month high and sustaining a two-week climb. The uptrend has kindled optimism of surpassing the metal’s previous peak of $2,074.88 from August 2020. Mark Newton, Fundstrat’s head of technical strategy, reinforced this sentiment, asserting that gold appears poised for a resurgence to new all-time highs. For many traders, the breakout level to watch is $2,050, signifying potential momentum propelling prices toward this milestone.
Newton set a technical target of $2,500 per ounce for gold, citing attractiveness in long-term precious metal investments amid declining real rates, escalating economic cycles, and ongoing geopolitical tensions. Michele Schneider of MarketGauge.com expressed a belief that gold might reach $3,000, highlighting its resilience despite a stable dollar and rising interest rates. While a higher interest rate environment often favors returns from US Treasuries over gold, the metal’s momentum seems favorable for investors, especially if it breaches the critical breakout threshold of $2,050, according to Schneider from MarketGauge.
However, some cautionary signals are emerging.
Forecasts anticipate the Federal Reserve maintaining unchanged interest rates during its upcoming meeting, continuing its “higher for longer” strategy. Although this speculation signals a potential end to the Fed’s tightening cycle, not all factors favor gold.
China and India, pivotal players in the physical gold market, exert substantial influence on its price trajectory, comprising over 50% of its market. Recent indications suggest that gold prices are nearing record highs in both countries, potentially impacting retail demand.
Despite gold hitting a six-month high at $2,017.82 an ounce and climbing 11.5% from the recent low in October, reports from India suggest a slight slowdown in demand, reflected in doubled dealer discounts and sluggishness ahead of the wedding season. Similar trends emerge in China, with decreasing premiums and lower net imports, suggesting muted import demand attributed to high prices and economic uncertainty.
The question remains whether these major consumers, China and India, will sustain their gold purchases amidst escalating prices. While investment buying and central bank acquisitions remain strong drivers, high prices could dampen consumer demand, potentially affecting gold’s rally in these markets. The current scenario indicates that while gold may still experience upward movements, the certainty of its gains might be less assured than suggested by the anticipated easing of monetary policies in western economies.