Gold prices trading near six-month highs; is a breakout imminent?
NEW YORK (November 27) The gold market continues to attract new attention as prices hold above $2,000, trading near a six-month high. While the market has some significant momentum on its side, analysts appear mixed as to whether all-time highs are on the near horizon.
The gold market is benefiting from renewed market expectations that the Federal Reserve will cut interest rates sooner rather than later. According to the CME FedWatch Tool, markets see a 25% chance of a rate hike as early as March; however, markets see a rate cut more likely in May or June. Spot gold prices last traded at $2,012.60 an ounce, up 0.5% on the day.
Some analysts note that regardless of expectations, weakening growth and cooling inflation supporting eventual rate cuts will continue to support gold prices.
Craig Erlam, senior European market analyst at OANDA, said it could be only a matter of time before prices hit all-time highs.
"We're still seeing some pushback, but this break has been backed by softer US data in recent weeks and less hawkish commentary from the Fed. That may be the difference this time around and enable it to look up towards record highs, only a few percent above where it currently finds itself," he said.
Looking at gold's technical price action, some analysts have said that a clear break above $2,010 was a critical hurdle the market needed to clear for a chance to all-time highs.
Nick Cawley, senior strategist at DailyFX.com, said that a close above $2,009 an ounce opens the door to a rally back to $2,049 an ounce.
Some analysts also noted that gold continues to benefit from robust seasonal factors as prices have seen significant rallies in the last month of the year.
However, not all analysts are convinced that gold prices are ready to take off. Alex Kuptsikevich, senior market analyst at FxPro, said that the gold market is trading in "thin air territory."
He noted that a break above the all-time highs of around $2,080 could ultimately push prices to $2,130 an ounce, a fundamental Fibonacci level. However, he added that the market does face some challenges towards this target.
"Gold will need strong tailwinds to realize such a bullish scenario. And there could be problems with that," said Kuptsikevich. "The long-term picture also points to the formation of a triple top in gold – a reversal pattern. However, its legitimacy is now in doubt amid the rapid upward reversal since the beginning of October. In any case, the dynamics of gold in the coming days promise to be trend-defining for many months ahead, as we may see either a breakout of long-term and psychologically important resistance or the beginning of a multi-month or even multi-year bear market."
At the same time, some analysts note that the gold market needs to see more Western investors jump into the market through gold-backed exchange-traded products. According to the World Gold Council, 1.5 tonnes of gold flowed into ETF markets last week for the second consecutive week.
Geoff Garbacz, principal at Quantitative Partners, said that despite higher prices, he doesn't see gold in a bull market yet.
"The proxy for Gold is GLD and it peaked in May at $191.36. From there, it fell by -11.35% to its low on October 5th. Yes, it has rallied by 9.89%, but there is a bigger issue here," he said. "GLD peaked in August of 2020 at $194.45 and has been unable to clear that level three years later. As such, Gold is just in a long sideways move."
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