Gold Price Gaining Momentum

The Gold price surged to a new all-time high after surpassing the major resistance level of $2,080-2,090. The current global inflationary environment combined with the turmoil in the Middle East favors the gold rally. Additionally, the price of gold has been trading close to $2,000 for the past 4-5 years, while other financial classes such as equities and cryptos have performed exceptionally well.

■ Assets: XAU/USD (currently $2,325)

■ Forecast: Gold Price Uptrend Continuation (↑)

 

General Outlook

These are some key facts regarding the future of the gold price rally:

(√) Factors favoring the gold price rally

■ Since 2022, we have entered a high inflationary environment (FIAT money is constantly losing purchasing power)

■ There is the prospect of two rate cuts by the FED in 2024 and more rate cuts in the following years (more later)

■ There is war and political turmoil in both Europe and the Middle East. An unstable political landscape increases the systemic risk and consequently favors the demand for hedging using gold

■ The price of gold has been underperforming for the past 4-5 years, while recently it has managed to cross over historical resistance levels

■ Central Banks continue to add to their gold reserves (they bought more than 1,000 metric tons in 2023)

(x) Factors against the continuation of the rally

■ The total supply of gold has increased by approximately 3% in 2023, while the demand for gold was slightly lower

■ If recession knocks at the door of the global economy in 2025-2026, equities will enter a downtrend, and the price of gold will have to follow

■ After the recent gold price rally, a lot of people rushed to sell physical gold, especially in the form of jewelry at pawn shops

■ Since the launch of the Bitcoin ETF, investors have started to include Bitcoin in their portfolio along with gold. If and when BTC volatility will normalize in the future, younger generations will probably treat BTC as digital gold

 

 

Gold Demand & Supply Data

The global demand for gold reached 4,400 metric tons in 2023, slightly lower than the previous year, while the supply was higher than in 2022.

According to the World Gold Council:

□ DEMAND: The annual demand (excluding OTC) was 4,448 metric tons, 5% below the very strong 2022.

-Central Banks purchases reached 1,037 metric tons in 2023, almost matching the 2022 record

-Gold ETFs saw a third consecutive outflow, losing annually 244 metric tons

-The demand for gold for jewelry purposes reached 2,093 metric tons (close to 2022)

-The demand for gold bar and coin investment saw a 3% annual contraction

-The annual demand for gold used in technology fell below 300 metric tons in 2023

□ SUPPLY: The total supply of gold reached 4,900 metric tons, 3% higher than in 2022.

-3,644.4 metric tons from mine production (+0.54% compared to 2022)

-1,237.3 metric tons from recycling gold (+8.5% compared to 2022)

 

Technical Analysis -Gold Price Gains Momentum

Historically, when uncertainty increases, investors buy Gold. That may easily explain the recent surge in the price of gold. However, the technical analysis looks even better than the fundamentals. The following chart presents gold monthly volume candles (on the top) and RSI Precision (on the bottom). » More about RSI Precision (multisignal indicator)

Interestingly, RSI Precision shows significant room to grow over the next months. Additionally, MACD is still bullish and there are no bearish divergences yet. Overall, the gold price trend looks very healthy. Nevertheless, a small correction after a surge is always on the table.

Chart: Gold Price Monthly Volume Candles & RSI Precision v3

 

The gold price has entered a strong bullish trend, there is no question about that. But when the price of a financial asset crosses over a major historical resistance level, it occasionally returns later to confirm it as support.

■ Historical Resistance → becomes later historical support

It will be difficult to see gold returning to the previous major resistance level of $2,080-2,090. However, any attempt to correct and even go near these levels will prove an excellent opportunity to build long positions.

□ Resistance (Long-Term):

(↑) $2,430

(↑) $2,650

(↑) $3,280

□ Support:

(↓) $2,220

(↓) $2,090-2,080

 

Federal Reserve Policy -Expecting 1-2 Rate Cuts in 2024

According to the Fed's Interest Rate Tool, we should expect one or two 0.25% rate cuts in 2024.

-0.25% rate cut in September 2024

-0.25% rate cut in December 2024

-Additionally, 2-3 more rate cuts in 2025 (0.25% each)

 

Final Thoughts

The outlook for the gold price is currently positive. However, after the recent surge, the price of gold may enter a consolidation period and range between $2,100 and $2,300 for several weeks or even several months. After the end of the consolidation period, the gold price could move higher, probably to test the resistance of $2,430, and even $2,650.

Nevertheless, if for any geopolitical or economic reason, the US economy shows signs of a strong recession, equities will enter a downtrend, and gold will follow. Remember that gold is a hedge against inflation, not a hedge against recession.

 

■ Gold Price Analysis 2024-2025

George Protonotarios, financial analyst

TradingCenter (c) April, 24th, 2024