Uncertainty in the financial markets has kept gold on an uptrend since November with gold closing last week above $1,900 an ounce. VAULTALP will provide an update on what is supporting the gold rally and what might influence the next big move.
Gold Price Action
With gold ending last week above the key resistance level of $1,900, some analysts are now suggesting that gold may be setting up for a run at $2,000. It is undeniable that recent instability in the financial markets has been supportive of gold, no less the massive inflationary pressure caused by excessive money printing during the Covid crisis. With inflation at current levels, gold’s safe haven quality is very much in demand.
Gold Technical Analysis
Gold has support from the technical side too with both Fibonacci and moving average indicators pointing to further upside for gold. The relative strength index (RSI) also suggests gold is in bullish territory, with gold in the 60-80 range, which suggests further upside potential. Phillip Streible, chief market strategist at Blue Line Futures was quoted by Kitco as saying “There is a gravitational pull to $2,000 and it will only build as prices continue to move higher.”
USD Outlook
Despite the recent bull run in the USD, many analysts are now suggesting that the USD may soon be facing headwinds. Firstly, suggestions from the Federal Reserve indicating that interest rates may not rise as quickly as recently as thought has put pressure on the USD. Additionally, Janet Yellen recently warned Congress that the government could reach its debt limit before the end of the month. Edward Moya, senior North American market analyst at OANDA told Kitco “We knew the debt issue was going to be a problem in 2023, but we weren’t expecting it to rise to prominence so soon….The short-term reaction in gold is warranted, giving how much uncertainty there currently is.”
From a technical perspective, the picture for the USD does seem to be rather dark. Recently the USD formed a Death Cross where the 50 day moving averages crosses below the 200 moving average. This shows that the short-term trend in the USD has been underperforming versus its long-term trend.
Central Bank Gold Demand
Central bank demand for gold has been firm in recent months, with many countries adding to their gold reserves. With the USD weakening, other countries are finding it easier to buy gold. In particular, China and Russia have been significant buyers of gold recently as they seek to reduce their dependence on the US Dollar.
According to the World Gold Council, Central banks bought 50 tonnes of gold on a net basis in November 2022, equivalent to a 47% increase on October’s 34 tonnes. Krishan Gopaul, senior analyst EMEA at the World Gold Council noted “The central bank sector has been one of the highlights of the gold market in 2022, having bought a net 673 tonnes between Q1 and Q3. Looking ahead to the full year picture, it’s likely that central banks accumulated a multi-decade high level of gold in 2022.”