Gold’s ‘Break Out’

Gold has long been stuck trading in a range broadly between £1,500 and £1,600, but as of the start of March, gold broke into a new all-time high. Our last article on the Golden Cross looked at price conditions which could potentially set the scene for a decisive move higher, and this now appears to have come to pass.

The latest move higher came off the back of United States economic data which increased investors’ expectations of a June interest-rate reduction. This is despite the uncertainties a presidential election might introduce into the market.

What’s remarkable is that the heightened expectation of a June interest-rate reduction saw an immediate weakening of the dollar, which no doubt supported the gold price in its move higher –  gold tends to move inversely to the dollar as a weaker dollar means more currency is required to pay for a given weight of the yellow metal. However, the US dollar has now recovered back to its previous level whilst gold continues to trade around the ceiling of its new highs (Gold GBP: £1,700; USD: $2,160)

From a charting perspective, gold will need to consolidate its position above £1,640 ($2,080) to provide confidence in any move higher. This area marked a key ceiling for gold price advances during its previous range trading. A move below this level in the short term would cast doubt on the strength of gold’s recent rally.

The market’s anticipation of gold moving to a $3,000 (£2,360 at current exchange rates) long-term target is building, however, and there are short-term conditions which would help support gold in this move. One is gold trading close to £1,700 for an extended period. Psychologically, this will help investors normalise this price level, and will begin to anchor their expectation beyond this ‘base’. The second condition is a clear push towards £1,800; this would then help cement £1,640 as a significant level of support, and an entry point for new purchases.

Sources

Trading Psychology: Why Behavior Matters for Traders (investopedia.com)

Presidential election or not, economists say, the Fed will cut interest rates in the fall if it must | CNN Business

The gold price hit a record high in March – could it soar higher? | MoneyWeek

Riding the Wave: Gold Price Forms Golden Cross Technical Chart Pattern | The Royal Mint

Notes

The contents of this article are accurate at the time of publishing, are for general information purposes only, and do not constitute investment, legal, tax, or any other advice. Before making any investment or financial decision, you may wish to seek advice from your financial, legal, tax and/or accounting advisers.