Next stop for gold price: $2,500?

Despite the Federal Reserve's continuous communication to market participants that they still have work to do in reducing inflation to achieve the desired target level, the market does not seem to care. For example, the recent surge in gold prices benefited from this, with gold reaching a new high of $2,137 per ounce on Monday, only to sharply fall back afterwards. In the past two consecutive months, the price of gold has skyrocketed, eventually reaching a historical high of $2,137 per ounce this week. However, the extreme selling that occurred after the new high was reached has resulted in a negative trend in gold prices on a monthly basis. After experiencing significant adjustments in the past two days, traders are carefully studying the recent price movements and considering whether this trend will continue.

Background of recent fluctuations in gold prices

First and foremost, there is increasing concern among global central banks about the decline of the US dollar as the primary reserve currency. The market believes that the loss of attractiveness of the US dollar is due to policy mistakes, including the US involvement in the turmoil in the Middle East. In addition to tensions with major Asian countries, the continued indirect support for Ukraine has further weakened people's confidence in the US dollar.

Furthermore, concerns about the US's ability to fulfill its fiscal responsibilities have arisen due to policy mistakes and military interventions, leading to a sharp increase in US debt. This has raised concerns about the demand for US Treasuries, and recent attention to US Treasury auctions has sparked speculation. Countries suffering from US sanctions are exploring difficult alternative mechanisms to bypass US sanctions, indicating that they are gradually reducing their dependence on the US dollar-dominated financial system. For example, according to market speculation, the only reason why the Qatar Sovereign Wealth Fund is buying Bitcoin is because they have lost confidence in the US dollar.

Reasons for the rise in gold prices

The surge in gold prices to a historical high is not caused by any single factor. Technical traders have been closely monitoring price movements and have observed that if gold starts to fluctuate at higher levels, momentum will inevitably rise. Secondly, previously released US CPI data and other indicators monitored by the Federal Reserve continue to show a much more positive outlook in terms of reaching the target level for inflation data, which has been weighing on the US dollar index. The year-on-year growth rate of US CPI in October fell sharply from 3.7% in the previous month to 3.2%, lower than the expected 3.3%.

Although the Federal Reserve Chairman has stated that the work of curbing inflation is not yet complete, most investors have ignored his remarks, and the market still expects the Federal Reserve to start cutting interest rates as early as the middle of next year. Smart investors anticipate that gold prices will reach new highs and enter the market to buy. The rebound in the stock market after the Federal Reserve's speech indicates that market participants are skeptical about the outlook for the Federal Reserve.

What is the future trend of gold prices? On Friday, the US non-farm payroll data for November will be released, along with the University of Michigan consumer sentiment and inflation expectations data. This week will be a crucial week for the Federal Reserve and the gold market. If these statistics indicate a stable job market, increased consumer confidence, and even lower inflation expectations, the price of gold is expected to rise.

In mid-November, the World Gold Council published a commentary stating that geopolitical risks and safe-haven buying are driving up the price of gold. It is expected that if geopolitical tensions continue to escalate or even worsen, the stock market enters a bear market phase, the risk of economic recession rises again, or bond yields and the US dollar peak, the price of gold is expected to further increase.

Louise Street, a senior market analyst at the World Gold Council, said that gold demand has remained resilient this year, performing well despite the adverse factors of high interest rates and a strong US dollar. Our report shows that gold demand in the third quarter remained at a healthy level compared to the five-year average. Looking ahead, due to expectations of intensified geopolitical tensions and continued strong central bank gold purchases globally, gold demand may experience unexpected growth.

Although there may be short-term selling, it may be wise to see it as an opportunity for investment. Mark Newton, an analyst at independent market research firm Fundstrat, said that the breakthrough of the resistance level at $2080 for gold marks a "clear technical breakthrough". However, he also explained that the expected timing for gold to rise to $2500 may not necessarily be by the end of the year, but rather a "intermediate target". Overall, the trend seems to be upward for 2024, with expectations of reaching more historical highs and possibly approaching $2500 per ounce next year. From a technical analysis perspective, the price trend still looks strong, with the next resistance area at the psychological level of $2200 per ounce. It is important to closely monitor the upward trend line, as the price may retest this trend line to find new buyers.