Gold prices are being propelled towards record highs by three key factors: economic uncertainty, falling bond yields, and a weaker US dollar. This year, central bank buying has further fuelled the rally. The flight to safety among investors has also contributed to increased demand for gold. Other precious metals, such as silver, have rallied even more recently. Falling bond yields, a weaker US dollar, and other signs of a softening economy are all contributing to the increased demand for gold. The decline in US Treasury yields has been sharper than the fall in many yields overseas, which has weighed on the dollar. Additionally, central banks around the world are diversifying their reserves, with some buying gold at the fastest pace in a decade. While gold is currently near record-high prices in nominal terms, it is still far off its inflation-adjusted peak in 1980. However, with various factors working in its favour, the price of gold may have more room to rise.
- XAUUSD is trading at a key resistance level near the $2,000-$2,100 levels (red shaded horizontal).
- This is the third time the precious metal is trying to breach the psychological $2,000 level since August 2020.
- The Bollinger bands are diverging (black ellipses). This suggests an expansion of volatility at the key resistance level.
- The current gold price is in its bullish channel between the upper blue and red bands.
- The RSI has mostly stayed above 50, which is the positive side of the indicator (green rectangle).
- The longer it maintains on this side of 50, the greater the likelihood of the gold price overcoming the key resistance.
- XAUUSD has charted a series of higher troughs (HT) followed by higher peaks (HP).
- This is a defined uptrend.
- The previous two attempts to breach the $2,000 level were accompanied with overbought readings on the RSI.
- The RSI than faltered dipping below 50 as momentum waned (red rectangles).
- The current RSI is above 50 and is not overbought (blue rectangle).
- The longer it maintains this position the greater the likelihood that the $2,000 key resistance is breached
- The trend-following 5- and 10-EMAs have crossed positively, as has then momentum-based stochastic (black ellipses).
- The latest candle (still to complete) is a gravestone doji:
- Bulls pushed into the resistance area but lost control tothe bears at the days high.
- The bears have pushed priced back down.
- To make progress:
- The EMAs need to develop angle and separation to the upside.
- The stochastic needs to move to the 80+ levels (blue arrow) and hold.
- These will suggest that an underlying bullish momentum is present, which will be price supportive.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.