Gold’s bullish breakout signals pivot to record highs

Having staged a remarkable rally last week — breaking past key technical thresholds to reach the highest point since December 2023 ­— gold’s bullish breakout may be the beginning of a run that sees prices reach new record highs, precious metals analysts said.

By Friday’s close, the precious metal had notched a substantial weekly gain of 2.33 per cent, settling near $2,082.

Analysts at Daily FX attribute bullion’s bullish momentum in part to a moderate pullback in US Treasury yields, a reaction triggered by two significant economic reports that left investors pondering their implications for the Federal Reserve’s monetary policy stance.

Analysts at FX Empire said the next higher target for the yellow metal is $2,100. Gold’s last record high was set in December at $2,135. The precious metal took off and reached a high of $2,088 on Thursday before encountering resistance. “That high completes the next target for gold, which was at $2,088 from the December 28 swing high. Gold is on track to close strong, in the top 25 per cent of the day’s trading range,” they said.

Ole Hansen, head of Commodities Strategy at Saxo Bank, said despite the rising cost of holding a non-interest paying gold position and the market’s current obsession with AI-related stocks and cryptos, the yellow metal has done well amid underlying demand for physical gold and the softer dollar. In this update, we also take a look at the drivers currently dictating the direction of silver.

“We keep a bullish outlook for gold and, with that, also silver, but as we have highlighted on several occasions in recent months, both metals are likely to remain stuck until we get a better understanding of the delivery of future US rate cuts,” said Hansen.

Until the first cut is delivered, the market may, at times, run ahead of itself, in the process building up rate cut expectations to levels that leave prices vulnerable to a correction, Hansen added. “With that in mind, the short-term direction of gold and silver will continue to be dictated by incoming economic data and their impact on the dollar, yields, and, not least, rate-cut expectations.”

Bank of America forecasts gold to trade close to $2,200 by December 2024. The prediction is grounded in several bullish indicators, such as the dollar’s limited upward movement, recent declines in yields, and a favorable Commitment of Traders report.

CNBC financial experts predict a substantial increase in gold prices, projecting a rise to $5,000 per ounce. It is backed by current low prices to the Federal Reserve’s interest rate hike. They anticipate that the economic downturn will force the Federal Reserve to reverse its rate hike and reinstate gold as a less risky asset. It is believed that the Fed will have to change course in the near future, bringing rates into negative territory and implementing another round of quantitative easing (QE4), which is expected to be larger than ever.

Morgan Stanley has expressed a bullish stance on gold as it foresees US stocks and bonds outperforming their emerging markets counterparts. The company’s top strategists expect US earnings growth to reach a trough in early 2024 and subsequently rebound. They anticipate that US growth will remain robust compared to other regions, with emerging markets growth likely to disappoint and shift investors towards gold as an investment. Their focus on gold prices has strengthened as they believe yields will fall to 3.95 per cent.

JPMorgan views both gold and silver as valuable late-cycle diversifiers, well-positioned to perform over the next 12 to 18 months, irrespective of whether the US experiences a soft or hard landing. It is expected that gold will continue to attract attention in 2024 as there have been several banks causing ripples of anxiety through the markets. As fears of a global recession continue, most major funds and wealthy investors are exposing their portfolios to more gold, as it tends to hold value in tough economic times, analysts pointed out.

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