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Gold: small window of opportunity for investors

Recent weakness in gold prices had been driven mainly by profit-taking

The current downtrend in gold prices may offer investors only a small window of opportunity before they start climbing again, according to analysts.

The recent weakness in gold prices had been driven mainly by profit-taking and a short-covering rally in US dollar and weakness in government bond prices, causing yields to rise.

According to Forex.com research, if one looks at the historical chart of gold, the area around $2,000 has seen strong resistance in the last three years or so. “Each time gold has tried to break away from the zone, we have seen a sharp rejection,” Fawad Razaqzada, analyst at forex.com, wrote in a research note on April 20. “I believe it eventually will hit a new record high,” he added.

According to World Gold Council data, gold rose by 9.2 per cent in the first quarter to $1,980/oz, propelled by fears of an economic crisis and simmering geopolitical tensions. “While the sudden banking mini-crisis triggered by the collapse of Silicon Valley Bank (SVB) drove gold higher towards the end of the quarter, yields (level and volatility) and the dollar remained ever-present drivers,” a WGC report said.

According to Yahoo! Finance, the big picture for gold is not as bullish as it might seem based on its most recent move above $2,000. Gold is barely above its 2011 high in nominal terms, despite loads of dollars being printed in the meantime and even despite the war outbreak in Europe.

Indecision over where Federal Reserve policymakers really sit on future US interest rate expectations can be reflected in the inability of Gold to keep its head above water in regard to the psychologically important $2,000 handle, .

Yet, the precious metal is still up by close to 10 per cent year-to-date and investors are likely to take a simple approach towards investing over the longer-term. “By this it is implied that the higher likelihood of the Fed turning dovish is going to increase the likelihood of gold buyers returning to the market,” says Jameel Ahmad, chief analyst at CompareBroker.io.