Gold prices made a substantial move high, achieving two-week highs around $3,400 before reversing back down towards Wednesday’s low near $3,375. This up and down movement underscores the continued volatility of the precious metals market. Now more than ever, investors are carefully calculating the impact of upcoming economic data pulls. Despite this pullback, gold buyers are not discouraged, lifted by the overall bullish momentum reflected by positive technical indicators.
On Wednesday, gold staged an impressive rally. This dramatic rebound was driven by increased demand from central banks and increasing geopolitical tensions. Early Thursday, buyers stepped to the sidelines. They prepared themselves for a plethora of tier-two U.S. economic data that had the potential to move market sentiment and gold prices in a meaningful way.
Technical Outlook for Gold Remains Positive
This bullish momentum should persist as long as the 14-day Relative Strength Index (RSI) stays above the critical 50 threshold. Market analysts believe that the RSI’s current positioning suggests that Bitcoin may see a continuation of upward momentum. In the near term, gold is looking up to the $3,400 level as resistance, which is seen as a key level to hold for maintaining any uptrend.
Gold is currently retreating from around $3,400 after recharging its two-week highs Wednesday morning. From a purely technical perspective, acceptance above this price point is required for a continuing bullish breakout. If gold can somehow close back above $3,400 this week or next, that would open the door for more upside. Market participants need to be on the lookout for any indications of fragility. This becomes increasingly critical if prices fall below the support area.
The next firm support for gold lies at the 100-day Simple Moving Average (SMA) currently at $3,328. Analysts note that only a persistent move below this level would remove any positive medium term bias. The 21-day SMA recently closed above the 50-day SMA. This bullish crossover raises the bullish sentiment towards gold further.
Central Banks Boosting Gold Reserves
Emerging economies, especially those in the BRICS bloc of nations, have been adding heavily to their gold reserves, further boosting demand. In 2022, central banks from China to India to Turkey scrambled to increase their reserves. They increased their gold reserves by an unprecedented 1,136 tonnes, worth an estimated $70 billion. This broad trend only further establishes gold’s rising position as a key asset in times of economic volatility.
Market observers point to gold’s foundational central bank accumulation as a major force propping up gold prices. This strategic move indicates their confidence in gold’s long-term value. Geopolitical tensions are on the rise and inflation is surging. In an apparent reaction, central banks are rushing to add to their gold reserves, hoarding it as an insurance policy against future downturns.
As these central banks are looking to acquire gold, it’s sure to put upward pressure on prices. Still, analysts say this recent trend could be a powerful countervailing force supporting high gold prices in the context of deeper economic fundamentals.
Economic Factors and Market Sentiment
Perhaps even more than in the past, market sentiment surrounding gold is shaped by the constant chatter about possible interest rate hikes or cuts. Comments from Federal Reserve officials suggest that while interest rates may eventually decline, policymakers will closely monitor upcoming economic data before making any decisions.
“It is likely interest rates can fall at some point but policymakers will need to see what upcoming data indicate about the economy to decide if it’s appropriate to make a cut next month.” – John Williams
The relationship between interest rates and gold prices continues to be incredibly important. As a non-yielding asset, lower interest rates usually make gold more attractive as they lower the opportunity cost of holding such an asset. Therefore, any dovish signals from the Federal Reserve will likely strengthen demand for gold in the short term.
Moreover, former President Donald Trump’s consistent criticisms of the Federal Reserve’s independence may impact market expectations regarding monetary policy. As a result, observers feel that these political dynamics can help prevent any significant downside risk for gold in the short term.