By the Asian trading session on Wednesday, gold prices jumped to a new record. This increase is a sign of escalating international panic and economic flight to quality, or a flight to safe-haven assets. With geopolitical tensions escalating in Eastern Europe and beyond, investors are rushing to the apparent safety of gold. Prices are quickly approaching the historic barrier of $4,200 per ounce. Central banks have played a key role in driving this increase, accumulating record levels of gold reserves in 2022. This accumulation of reserves has led to a very bullish sentiment surrounding the precious metal.
Recent price action tells the story. Gold prices are moving up. This rise is supported by an extensive array of both technical indicators and macroeconomic fundamental catalysts. Geopolitical uncertainties are causing investors to crave commodities as a shelter. Analysts are now noticing the ongoing Russia-Ukraine conflict and rising trade tensions between the US and China are major drivers of this trend. As a result, gold has become a highly sought-after asset in these stormy times.
Central Banks Boost Gold Reserves
According to the World Gold Council, in 2022, central banks worldwide increased their gold reserves by approximately 1,136 tonnes. This inclusion was worth an estimated $70 billion. This is the largest annual purchase of gold on record. Heavyweight emerging economies such as China, India, and Turkey are in the midst of massively increasing their gold reserves. Together, this wave is creating an unprecedented demand for the metal.
This hawkish buildup by CBs has been largely pushed by worries over global economic crash and inflation. These institutions are busily seeking to expand their reserves of diversity. To guard against currency volatility, they’re doing so by making gold a key pillar of their plans. We believe this sustained demand from central banks is likely to underpin gold prices longer term, along with other drivers.
The combination of increasing gold reserves and a global environment that is growing more chaotic by the day augurs a strong balance for gold’s continued advancement. Analysts expect central banks to remain aggressive in their buying. That might help push prices even higher than already expected, especially if the concerns about a geopolitical crisis linger on.
Technical Indicators Favor Gold Prices
Gold’s recent bullish activity is unmistakable—a clear 5-alarm comet-tail breakout. The formation of an upward sloping trend-line support is indication of a bullish long-term price trajectory. Adding to this bullish sentiment is the 50-period Simple Moving Average (SMA) on the 4-hour chart. According to this technical analysis, the path of least resistance for gold prices is still upward overall, with the possibility of some near-term volatility.
At present, a floor has developed under gold prices around $4,100. Analysts warn that a compelling break under $4,000 could ignite technical selling, bringing prices down with it as stop-loss orders exacerbate the move. Any corrective pullback toward the $4,100 region would offer an exceptional buying opportunity. That’s particularly the case if prices are able to consolidate near the $4,060/$4,055 resistance area.
Yet, even with all these favorable signs, there should be some caution since the daily Relative Strength Index (RSI) shows an overbought extreme. Investors will want to be prudent as they position themselves to benefit from future gold price appreciation. An astute read on the market environment will be essential in guessing the next likely price direction.
Geopolitical Tensions Fuel Safe-Haven Demand
The current geopolitical landscape has certainly been conducive to pushing safe-haven flows into gold. Meanwhile, the ongoing Russia-Ukraine war, now entering its seventh month, continues to create new economic risks and uncertainty across global markets. Further, renewed US-China tensions in recent months have added to fears over trade and global economic stability.
Gold is still an efficient way for investors to seek safe haven. They see it as a reliable store of value as global worries continue to mount. Gold prices have spiked to near record highs over the last three weeks. Yet most investors view the uptick as a form of short-term insurance against what is still an uncertain economic future.
As long as geopolitical threats have not been resolved and economic uncertainty has not settled, demand for gold will stay strong. Investors are realizing the need to diversify their portfolios with safe-haven assets, such as gold, to reduce risk.