Gold prices remain well supported, underpinned by US data disappointments and rising global risk factors. The torchbearer of this bullish theme, recent economic data has showed a continued drop in US manufacturing activity, emboldening this precious metal’s surge. Investors are desperate for safe-haven assets. Gold, on the other hand, is still flying high above a bullish rising trendline that began its climb months ago.
Today’s economic landscape might best be described by two rounded base formations that have formed above this underlying trendline. These formations point to a bullish formation for gold, implying the likelihood of additional upside in the near term. After a significant recent pullback, gold appears to be stabilizing and setting itself up well as the market begins to change.
Weak US Indicators Support Gold Prices
The recent trade and industrial production reports from the United States further highlight a grim reality for the U.S. manufacturing base. The manufacturing Purchasing Managers’ Index (PMI) dropped to 48.2 in November, the ninth straight month of shrinking activity. This increased concern is alarming analysts and is adding to the speculation that the Federal Reserve may be able to start easing monetary policy.
Weaker data – fragile at best Such weaker data naturally supports gold prices, which tend to shine the brightest throughout periods of pangs of economic peril. The CME FedWatch Tool currently indicates an 87% probability of a 25 basis point rate cut at the upcoming Federal Reserve meeting. Softenings in expectations of a tighter monetary policy paved the way for rising gold prices. Second, lower interest rates lower the opportunity cost of holding non-yielding assets, such as gold, making it a more attractive option for investors.
Additionally, the confluence of poor manufacturing data and bets for monetary easing pave the way for more gold bullishness. Physical Gold Investors view physical gold as a robust store of value against inflation and currency changes. That’s what makes gold such a popular choice, especially in times of economic instability.
Rising Global Uncertainties and External Pressures
Gold’s powerful rally is additionally being driven by increasing global risks that reach beyond US borders. This backdrop has changed in recent weeks, with the unexpected rise in Japanese bond yields creating new, external stresses on financial markets. It’s a precarious balancing act with microcentral banks, and the world finds itself in an extraordinary monetary experiment. This results in immense policy whiplash, which itself contributes to market uncertainty.
This divergence among central banks alienates stability in the market, causing shocks to equities and other investments. Consequently, several investors are turning to gold as a safe haven. The sad reality is the geopolitical tensions and economic challenges faced by countries around the world only heighten this trend. With uncertainties piling up, the need for gold’s store of value grows more valuable.
Additionally, the volatility in global markets has driven more investors to seek return-stable commodities, such as gold. However, uncertainties are still rife in the market. When this current phase of consolidation concludes, gold is set to resume its upward trajectory, reestablishing its time-honored status as a safe haven asset during crisis.
Technical Indicators Signal Constructive Setup
Gold continues to hold firm above its steadily rising trendline. This position further proves that it has not lost its momentum, despite a couple weeks of recent bumpiness. The creation of two rounded bottoms on top of this trendline is very bullish for longer-term price action. These bullish technical patterns indicate that buyers are gaining the upper hand, paving the way for more bullish price action in gold.
This new stabilization phase is just as important. It provides the market an opportunity to digest recent pricing trends and prepare for possible bullish breakouts. These analysts expect that after this phase of consolidation ends, renewed momentum will return to gold, moving prices higher.