The Golden Horizon: Strategic Insights into Spot Gold's Ascend
Idea
Last week the gold market showed clear directionality, raising the possibility of room for future movement. As the accompanying chart analysis shows, December 2023 saw a new all-time high for spot gold at $2,148. From December 2023 to February 2024, the gold price oscillated in a tight 'small flag' pattern. The watershed in sentiment appears to have been around the $2029 level, as indicated by the box range (between 2016 and $2040.) After the trendline breakout on 24 February, the market corrected sideways rather than rising rapidly until 1 March, when it rallied and broke out of the box simultaneously, before retracing the box. This area of consolidation could become a core area of support for gold prices for the foreseeable future.
Using an upward volatility strategy, the current spot gold rally has grown by more than 1:1 and is approaching the $2,120 price. As the bullish trend continues, it may be wise to stay on the low side of the market, with gold expected to hit $2,177 on a 1:2 basis. Pattern analysis suggests that gold's furthest target could be near the $2,246 level, with the red trend line on the chart serving as a reference for a low-buy entry, and $2,064 could be a good entry point.
Fundamental Implications
Atlanta Fed Chairman Raphael Bostic expects a rate cut in the third quarter, followed by a pause in rate hikes. This forecast is consistent with the Fed's current stance on interest rates, evidenced by the January 2023 Federal Open Market Committee (FOMC) decision to leave rates unchanged at 5.25% to 5.5%. Markets are betting that the Fed will begin easing policy from June and the next FOMC meeting will be on 19-20 March to update its rate forecast.
While investors are betting on the Fed to cut rates in June, mixed economic data from the U.S. has put the value of precious metals in the federal treasury and personal safety deposit boxes near record highs. Gold prices surged above $2,100 an ounce on Monday, rapidly approaching a high of $2,135.39. Analysts at TD Securities maintain their view that gold could rise further, especially since discretionary macro traders are underinvested in gold as we enter the historical norm of a Fed rate-cutting cycle.
Support and Resistance
Upside Potential: The gold price's next target is $2177, based on a 1:2 volatility ratio. If the long trend continues, the furthest potential upside target could be $2246.
Downside Resistance: The long/short watershed around the $2029 price level has now become support. If the price falls back, $2064 could be a stronger support level to consider as a low long-entry position. If it falls below this level, it may test the lower boundary of the box range, i.e. $2016.
Financial investors usually start buying gold ahead of expected rate cuts as non-yielding assets such as gold and silver usually perform well in a low-interest rate environment. Swap market data shows that nearly three-fifths of investors are betting that the Fed will soon deliver its first rate cut since early 2020. While the timing and magnitude of the Fed's rate cut is unclear, the widely anticipated cut has helped keep gold prices largely above the key $2,000 per ounce level since mid-December. Unlike other investment trends that move in and out of favour, gold has been a fixed asset in many portfolios, although demand fluctuates in response to external events. In addition to focusing on interest rate cuts, investors often want to hold gold in times of economic and political uncertainty; the upcoming US presidential election and ongoing wars have undoubtedly strengthened this demand. Steady buying from Asian central banks and investors is also a pillar of support for the gold price.
Last week the gold market showed clear directionality, raising the possibility of room for future movement. As the accompanying chart analysis shows, December 2023 saw a new all-time high for spot gold at $2,148. From December 2023 to February 2024, the gold price oscillated in a tight 'small flag' pattern. The watershed in sentiment appears to have been around the $2029 level, as indicated by the box range (between 2016 and $2040.) After the trendline breakout on 24 February, the market corrected sideways rather than rising rapidly until 1 March, when it rallied and broke out of the box simultaneously, before retracing the box. This area of consolidation could become a core area of support for gold prices for the foreseeable future.
Using an upward volatility strategy, the current spot gold rally has grown by more than 1:1 and is approaching the $2,120 price. As the bullish trend continues, it may be wise to stay on the low side of the market, with gold expected to hit $2,177 on a 1:2 basis. Pattern analysis suggests that gold's furthest target could be near the $2,246 level, with the red trend line on the chart serving as a reference for a low-buy entry, and $2,064 could be a good entry point.
Fundamental Implications
Atlanta Fed Chairman Raphael Bostic expects a rate cut in the third quarter, followed by a pause in rate hikes. This forecast is consistent with the Fed's current stance on interest rates, evidenced by the January 2023 Federal Open Market Committee (FOMC) decision to leave rates unchanged at 5.25% to 5.5%. Markets are betting that the Fed will begin easing policy from June and the next FOMC meeting will be on 19-20 March to update its rate forecast.
While investors are betting on the Fed to cut rates in June, mixed economic data from the U.S. has put the value of precious metals in the federal treasury and personal safety deposit boxes near record highs. Gold prices surged above $2,100 an ounce on Monday, rapidly approaching a high of $2,135.39. Analysts at TD Securities maintain their view that gold could rise further, especially since discretionary macro traders are underinvested in gold as we enter the historical norm of a Fed rate-cutting cycle.
Support and Resistance
Upside Potential: The gold price's next target is $2177, based on a 1:2 volatility ratio. If the long trend continues, the furthest potential upside target could be $2246.
Downside Resistance: The long/short watershed around the $2029 price level has now become support. If the price falls back, $2064 could be a stronger support level to consider as a low long-entry position. If it falls below this level, it may test the lower boundary of the box range, i.e. $2016.
Financial investors usually start buying gold ahead of expected rate cuts as non-yielding assets such as gold and silver usually perform well in a low-interest rate environment. Swap market data shows that nearly three-fifths of investors are betting that the Fed will soon deliver its first rate cut since early 2020. While the timing and magnitude of the Fed's rate cut is unclear, the widely anticipated cut has helped keep gold prices largely above the key $2,000 per ounce level since mid-December. Unlike other investment trends that move in and out of favour, gold has been a fixed asset in many portfolios, although demand fluctuates in response to external events. In addition to focusing on interest rate cuts, investors often want to hold gold in times of economic and political uncertainty; the upcoming US presidential election and ongoing wars have undoubtedly strengthened this demand. Steady buying from Asian central banks and investors is also a pillar of support for the gold price.
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