Spot Gold: Bullish-bias to Remain Strong
Gold prices have continued to surge to record highs this week, surpassing the US$2,600 mark for the first time, driven by market confidence in the Federal Reserve (Fed)’s policy shift. The bullish momentum is expected to persist for several reasons.
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Fed’s Rate Path: Despite a significant 50 basis point cut earlier this month, the Fed is taking a more cautious approach to future rate adjustments, projecting a 4.4% Fed rate by the year-end. Any potential deviation from this projection in favor of more rate cuts could be a catalyst for further gains in gold prices.
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Geopolitical Uncertainties: Gold serves as a valuable hedge against geopolitical tensions in regions like the Middle East, Ukraine-Russia conflict, and the ongoing US-China disputes. Additionally, the upcoming US election creates further uncertainty, with a tight margin indicating a possible Harris win and the electoral system’s influence on market reactions.
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Technical Analysis: The breakdown of US 10-year Treasury yields below a crucial neckline in August suggests a downward trajectory towards the 3.0% level, increasing the attractiveness of gold as a safe-haven asset. Lower bond yields are likely to support gold prices in the future.
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ETF Holdings: SPDR Gold Trust ETF holdings have been on the rise since late June 2024, indicating growing investor interest in gold. Continued ETF buying could provide further support for gold prices in the coming months.
Strategy: While a broader uptrend is anticipated, a buying-on-dips approach is advisable. Resistance is expected around the US$2,685 level in the short term, marked as a target from an earlier breakout pattern. With the daily RSI signaling near-overbought conditions, a retest of the resistance level followed by a retracement to the US$2,600 level or a RSI pullback may present good buying opportunities for long positions.
Additional Insight:
It’s important to consider that gold’s bullish momentum can also be influenced by macroeconomic factors such as inflation expectations, global economic recovery trends, and central bank policies. As investors seek safe-haven assets amid uncertain times, gold is likely to remain a favored choice, supporting its upward trajectory in the foreseeable future.
