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Gold eyes $2,500 after record high rally

Markets are fully pricing in the inevitable September Fed rate cut while odds of another cut in December stand at above 60 per cent, say analysts

Published: Wed 17 Jul 2024, 3:02 PM

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Gold bracelets displayed in a shop window on Green Street in east London. — AFP file

Gold bracelets displayed in a shop window on Green Street in east London. — AFP file

Gold price consolidated the three-day uptrend to a new record high above $2,480 in Asian trades on Wednesday, and eyes $2,500 and beyond.

With the looming US Federal Reserve interest-rate cut in September, a fresh lifetime high for the non-interest-bearing gold price comes as a little surprise.

According to precious metal analysts, markets are fully pricing in the inevitable September Fed rate cut while odds of another cut in December stand at above 60 per cent.

Vijay Valecha, CIO, Century Financial, said the yellow metal’s surge to an all-time high of $2,480 came as investors became increasingly confident in a rate cut by September. “Additionally, Jerome Powell said the Fed was happy with inflation’s trajectory on Monday. Moreover, geopolitical tensions and central bank buying continue to support the yellow metal. Meanwhile, on Tuesday, the 10-year US Treasury yields dropped to their lowest level in four months as rate cuts loom closer.”

Valecha said the Central Bank of the United Arab Emirates’ gold reserves reached Dh20.36 billion by the end of April 2024, a 12 per cent increase from the same period in the previous year. The latest data published by the central bank also indicated that its gold stockpile grew by 3.5 per cent month over month, rising from Dh19.615 billion in March 2024.

“On the chart, gold hit 77 per cent RSI (Relative Strength Index), an analytical tool which quantifies the price momentum of gold or other market-traded assets. However, the momentum on the MACD (moving average convergence divergence) still seems strong, currently at 4.14. Support could be seen around $2,250 and $2,416, and resistance could be seen around the psychological level of 2,500 and above at $2,535.55,” said Valecha.

Analysts noted that following a temporary bounce, the dollar downtrend resumed, helping gold price attain fresh levels on record above $2,450. Fed Governor Adriana Kugler’s comments added to the recent dovishness from several Fed policymakers, and accentuated the Gold price bullish momentum.

Analysts at the Australian and New Zealand (ANZ) Banking Group said in their research note that “higher prices are still dampening demand, but sensitivity has diminished over the past year. Despite a rise in gold’s price of more than 10 per cent in 2023, consumer demand stayed buoyant at 760 tonnes, a marginal decline of only 2 per cent y/y. The demand was also in line with the long-term (2013–22) average of 755 tonnes.”

“Higher capital gains and income growth have helped gold demand weather elevated prices,” ANZ analysts added.

Looking ahead, upside risks remain intact for gold price, as dovish sentiment around the Fed’s interest rate outlook will continue to boost the appeal of the non-yielding gold price. Analysts said any stimulus rollout by China to stimulate its economic growth could also act as a tailwind for gold price.

From a technical perspective, analysts said the overnight sustained breakout through the $2,425-2,430 supply zone and a subsequent move beyond the $2,450 area, or the previous all-time peak, could be seen as a fresh trigger for bullish traders. Any further move-up is more likely to face some resistance and pause near the $2,500 psychological mark.

On the flip side, any meaningful slide below the $2,450 area might now be seen as a buying opportunity and remain limited near the $2,430-2,425 resistance breakpoint, now turned support. A convincing break below the latter, however, might prompt some technical selling and drag the gold price to the $2,400 mark. Some follow-through selling below the $2,390 area could pave the way for deeper losses toward testing the next relevant support near the $2,360 region.



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