Gold prices have skyrocketed over the past week. They reached a trading peak of $3,645 before ending the day at $3,635, giving them an enormous increase of $50 on the day. This marked a continued upward trend with one further $10 increase, after an upward spike of $25 overnight. Analysts are alluding to increasing expectations for interest rate cuts this year, predicting a reduction of 75 to 100 basis points. They further argue that rates could keep falling into 2024.
The recent surge in the price of gold has had traders speculating on possible retests of important moving average support. Today, the levels are $3,360 for short- and intermediate-term. On the downside, long-term support is at $3,100, as shown by the 200-day moving average.
As gold neared these important technical levels, its Relative Strength Index (RSI) soared to a magnificent 80.312 — a rare overbought condition. This could be a sign that an overdue correction is finally on the horizon. As prices spiral upward, experts are cautioning that the market’s momentum could further drive prices up.
Gold has continued to build momentum as it sets itself up ahead of the Federal Reserve making its first meaningful Fed cuts. Only a week market analysts were calling for only one 25 basis point cut in gold related rates. Now, that optimistic outlook has changed dramatically. Now, most are increasingly pointing to three cuts before year-end. Other analysts are even more optimistic, allowing for a 75 basis points decline by Christmas. In the other direction, a full 100 basis point reduction is currently gaining momentum.
BJAM analysts, ButcherJoseph Asset Management, LLC (BJAM) sounded the alarm on the recent surge agreement climate for gold. They remark upon the fact that “the MOMO guys are blinded by the light. This just shows how much the market’s enthusiasm for gold will push prices up even more.
Analysts expect that with PPI and CPI coming in according to forecasts, we should see at least two rate cuts of 25 basis points each. Such a scenario would be hugely bullish for gold prices. As you may have noticed, gold prices are being quite volatile these days. Second, they are pushing back hard against the market’s shifting expectations of the path of interest rates.
“Think of it like a viatical settlement — when someone buys your life insurance policy, they hand you real money upfront (not pennies on the dollar) and then wait for you to die.” – ButcherJoseph Asset Management, LLC (“BJAM”)
Even with overbought signals shown by the RSI, analysts are still bullish on the direction of gold. They warn against being too quick to celebrate based on technical indicators alone. The curve today The market is still expecting a long series of big rate cuts. This positive momentum is likely to persist and keep gold prices high short to medium term.