Gold prices are showing no signs of slowing down as they continue to edge higher, driven by several factors, including interest rate cuts and soaring geopolitical tensions in the Middle East. After reaching an all-time high of $2,600 per ounce in the week, the upward momentum gathered steam, with the precious metal powering to another all-time high of $2685 per ounce.
Precious metals have been in terrific form in 2024, outperforming the overall market on gains. It is already up by more than 29% for the year compared to a 20% gain for the S&P 500. The metal is enjoying its best year in 14 years. The strong price gain may seem surprising given that the yellow metal is often seen as a long-term investment that gains gradually.
Fundamentals Driving Gold
The upward momentum on gold has been fuelled by the US Federal Reserve cutting interest rates by 50 basis points. The huge cut spooked the markets, raising serious concerns about the strength and health of the US economy.
The interest rate cut came amid weakness in the US labor market and slowing manufacturing activity. Continuous dovish remarks from officials at the Federal Reserve are only adding to the ongoing fire. Some policymakers have suggested more drastic reductions in the future, which have slightly boosted gold prices overnight.
Consequently, the 50 basis point ended up fuelling US dollar weakness, leading to higher gold prices. Additionally, the interest rate cut fuelled demand for non-yielding assets that benefit from lower interest rates. With investors shifting their attention from assets that benefit from higher interest rates, such as bonds and treasuries, gold has been one of the beneficiaries.
Additionally, gold prices have benefited from soaring tensions in the Middle East, pitying Israel, Lebanon, and Iran. The tension has added a layer of uncertainty in the global markets, fuelling demand for safe havens such as gold. Fear of an escalation of a total blown war in the region, which could draw in the US, is forcing investors to turn to gold as a storage of wealth in times of uncertainty.
Gold keeps hitting new record highs as political challenges shift back and forth. The People’s Bank of China (BoC) announced a stimulus package signaling economic weakness in the second-largest economy, supporting the precious metal.
The upcoming US election has added another layer of uncertainty in the global markets, prompting investors to turn to safe havens such as gold. Nevertheless, it is the fact that the FED is likely to continue cutting interest rates heading into year end, likely to fuel further dollar weakness that should continue fuelling higher old prices.
Gold Outlook
From a technical analysis perspective, gold is becoming increasingly difficult to analyze, especially when identifying resistance points. As we keep setting new record highs, it becomes harder to analyze due to the scarcity of historical price data.
On the other hand, the RSI (Relative Strength Index) daily, weekly, and monthly is all overbought. While overbought levels often act as potential reversal zones, gold is likely to remain in overbought levels for long, given the strong buying pressure. Consequently, given the strong upward momentum, having powered through the $2685 an-ounce level, there is a possibility of gold powering through the $2700 an-ounce level.
