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Gold has been a store for value for centuries. It is considered a safe haven during economic turmoil and geopolitical uncertainty. Amid rising inflation, continued geopolitical conflicts, and volatile stock markets, it has once again become the centre of attention. According to an April 2024 report, Goldman Sachs raised the year-end price forecast for gold to $2,700 per ounce, claiming that the yellow metal is in an “unshakable bull run.”
Read on to learn about the tailwinds propelling the gold price to new heights and the headwinds that may deter it from breaking more records.
Gold prices have experienced a significant rise in 2024. As of July 8th, the yellow metal had climbed 23.72% over the past year, hitting a record high of $2,426 per ounce in May.
Ongoing conflicts in Ukraine and the Middle East are driving traders to safe haven assets. The sudden demise of the Iranian President on May 19 has raised concerns regarding another potential feud in the region. The shocking news pushed gold price to an 11-year high of $2,450.07/ounce, although only for a short time. While the yellow metal ended the day a little lower, the spike was a great opportunity for high-frequency gold traders.
Inflationary pressures remain a concern globally. The OECD expects headline inflation to remain at around 5% in 2024, significantly higher than central bank targets in major economies. Gold is considered a hedge against inflation as its value tends to hold steady when fiat currencies depreciate. Therefore, investor sentiment is bullish on the precious metal.
Central banks of emerging economies have been increasing their gold reserves since 2023, potentially signalling a broader shift towards the precious metal. This increased demand is a significant contributor to price appreciation.
Uncertainties regarding the Fed lowering interest rates in September increased after the release of the FOMC’s meeting minutes on May 22. However, if rates are cut, it would lower the demand for the dollar, weakening the currency. Gold is inversely correlated to the greenback, which means the yellow metal could rise in such a scenario. These speculations are exerting upward pressure on gold prices.
Goldman Sachs is not alone in raising its price expectation for the shiny metal for 2024. Citigroup also forecasts that “investor inflow” may sustain the rally, pushing the price to $3,000/ounce by November 2025. The World Bank also predicts that gold will continue to shine brighter, expecting the price to remain 8% higher in 2024 than in 2023, supported by central bank demand, sticky inflation and retail investment. The World Gold Council’s April 2024 report mentions that the yellow metal may outperform its outlook, provided at the beginning of the year. The council believes that recycling and mine supply will both feed demand.
Despite the bullish sentiment, some analysts caution against excessive optimism. They believe reaching a true “unshakeable” bull market is not so likely for gold. Here are their reasons.
Gold is trading in a critical resistance zone. Both RSI and Fibonacci indicate that the market is overbought. This signals that the price is ripe for a reversal. A breakout is likely if the precious metal surges further, although the possibility of a reversal cannot be ignored.
By April 24, 2024, 79% of companies that reported their earnings had exceeded analyst expectations for Q1. Strong earnings reports indicate that the stock market rebound may continue through Q2 and Q3. This may divert traders’ interest and pull investments towards equities.
The Federal Reserve’s monetary policy decisions can significantly impact gold prices. For now, the Fed remains cautious about “moving too fast.” If the higher-for-longer stance continues through Q3, the dollar may surge further, weighing down on gold.
Gold is certainly an interesting market to explore. As a safe haven and tool for diversification, it finds a place in many experienced traders’ portfolios. The current market situation suggests that the precious metal is likely to continue to present tremendous trading opportunities. But the gold rally should be approached with a balanced perspective for informed decisions. Use technical analysis to discover trading opportunities and observe various factors that usually affect gold price, such as:
The good news is that you don’t need huge capital reserves to gain exposure to the gold market. Derivative instruments, such as CFDs, allow you to trade gold with leverage. This amplifies your purchasing power. Moreover, CFDs allow trading both rising and falling prices, multiplying trading and offering a mechanism to hedge against your positions. However, margin trading enhances profit and loss potential alike. Therefore, risk management is crucial while trading with CFDs.
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