It has been quite the ride for gold bulls. Let’s throw in the silver bulls too since the white metal moves in tandem with gold. Gold has printed new all time record highs against the US Dollar, but is now retreating from those highs at time of writing. In this Market Moment article, I will discuss why gold is rising and what comes next according to the charts.
Spot gold price rose to a record high above $2100 per ounce against the US Dollar before giving up gains. Analysts have said that the gold price is to remain above $2000 due to geopolitical uncertainty, a weaker US Dollar, and possible interest rate cuts.
“The anticipated retreat in both the USD and interest rates across 2024 are key positive drivers for gold,” Heng Koon How, head of markets strategy, global economics and markets research at UOB, told CNBC via email. He estimated that gold prices could reach up to $2,200 an ounce by the end of 2024.
“There is simply less leverage this time around vs 2011 in gold … taking prices through $2,100 and putting $2,200/oz in view,” said Nicky Shiels, head of metals strategy at MKS PAMP.
Bart Melek, head of commodity strategies at TD Securities, expects gold prices to average $2,100 an ounce in the second quarter of 2024, with strong central bank purchases acting as a key catalyst in boosting prices.
According to the World Gold Council and their recent survey, 24% of central banks intend to increase their holding reserves in the next 12 months. Furthermore, central banks’ views towards the future role of the US dollar were more pessimistic than in previous surveys. By contrast, their views towards gold’s future role grew more optimistic, with 62% saying that gold will have a greater share of total reserves compared to 46% last year.
My thoughts?
Yes, gold does indeed do well when confidence is waning. Some are saying that this move into record highs is due to the inflation fear coming back again, and pretty much that sh*t is about to hit the fan. The contrarian viewpoint.
But I think it is important to note the current market narrative. There has been a move higher in stocks and metals because investors believe the Fed will be cutting interest rates some time in 2024 and are pricing this in. We saw this with the epic rebalancing of probabilities with Fed Fund futures for December 2023. The markets are not pricing in or seeing a rate hike before the end of 2023. In fact, they do not see more hikes but CUTS next instead.
We know this because we see this move in bond yields:
There is a retreat in yields and it is investors pricing in the end of this hike cycle.
Plus the US Dollar is weakening after breaking below the 105.50 zone. The Dollar is falling because the market perceives a dovish Fed and no more rate hikes.
BUT
And I really mean BUT. What if the markets are wrong? I say this because Fed commentary has been ambiguous. Powell is acting quite dovish, but he has said the Fed is acting pragmatically and will act on data. He has left the door open for more rate hikes if needed.
In the beginning of November 2023, Powell did say the Fed is “not confident” it has done enough to bring down inflation. This could mean more rate hikes, or rates remaining higher for longer. Both would mean the repricing of the current market narrative which believes rates will be heading down soon.
The upcoming December 13th 2023 Fed meeting will be quite interesting. Let’s see how Powell’s rhetoric changes, and if it means that the markets have to rethink the current narrative.
From a technical standpoint, bond yields are actually at major support levels and if they do range here until the Fed next week, it would indicate investors waiting to hear from the Fed.
Now onto the gold chart. Before we look at the chart, I should mention that Gold has printed new all time record highs, either recently or a few weeks ago, against other fiats such as the Australian Dollar, New Zealand Dollar, Canadian Loonie, Chinese Yuan, the Euro, the British Pound, the Hong Kong Dollar, the Japanese Yen, the Indian Rupee and the Singapore Dollar. The only major fiat it has not printed record highs against is the Swiss Franc.
I want to start with the monthly chart. I mentioned in the last Market Moment post on Gold that I would be watching for a MONTHLY candle close above this current resistance zone. November’s monthly candle did close above all the candle bodies confirming a new all time record monthly close.
This was the key trigger.
For those playing the daily chart, we had a major breakout when gold took out the downtrend channel together with a breakout above $1925. The retest saw buyers step in and the uptrend continue.
Going forward, the $2000 zone is key support. I would bring it down a bit lower to $1987 given that this price level is the current higher low. A close below $1987 would see a further retreat… and could occur with a Fed surprise.
This means that the move down currently is profit taking and just a correction in this uptrend. Watch the $2000 zone and see if buyers step in here.
For those with itchy trigger fingers, let’s develop a simple game plan for the 1 hour intraday chart.
If gold does not go down to retest the $2000 support zone and instead bounces from here, I would wait for a 1 hour close above the $2070 zone. This is the current lower high. A close above this zone continues the uptrend momentum.
However, it appears that gold may drop to $2000 and then the $2030 level will be our intraday lower high. But let’s wait and see.
And a little bonus. Silver.
Silver is cutting back below $25. However, the current higher low comes in around the $23.40 zone. This means the uptrend remains intact and this move is just a correction. I will be watching for further pullback closer to this zone before jumping in.
Alternatively, a close back above $25.20 on the intraday would be bullish if we fail to retest the major support at $23.40.