Gold: Key Buy Zones to Target If the Long-Overdue Pullback Materializes
2024.09.23 07:42
Friday saw hit yet another record high, after crossing the $2600 mark. In doing so, the metal closed at a fresh unchartered territory for the second consecutive week, remaining on course to potentially finish up for the seventh consecutive month.
However, gold now looks quite overbought and may have to weaken first before heading further higher. After all, the has stopped falling against some currencies despite the Fed’s bigger-than-expected 50 basis point rate cut.
Even bullish investors would welcome a pullback in gold prices as it may provide a good opportunity for those who missed the big move to jump on the bandwagon.
Profit-Taking on the Horizon?
Gold is due for some profit-taking in the not-too-distant future. Judging by price action in the past, whenever the Relative Strength Index (RSI) crosses above 70, which is the case now, we have either seen a multi-day or multi-week consolidation, or a bit of selling pressure to help ease those RSI overbought conditions.
Not only is the daily RSI at overbought levels, but we have the weekly RSI also at extreme levels.
If that not enough, how about the monthly time frame? Sure enough, the RSI has not been this overbought since the height of the pandemic in 2020.
The fact that the RSI indicator is suggesting gold may be due a correction is not a sell signal on its own. Technically, gold remains in a strong uptrend, so it is anyone’s guess how far the metal could rise over time.
But do watch out for at least a short-term pullback and/or consolidation. Once gold eases back a little, it may resume higher towards my eventual long-term target of $3,000.
But the more immediate and realistic upside target for me is the $2700 mark next, now that $2600 has been breached.
Key Support Levels to Monitor
In terms of some key support levels to watch, well the $2600 level is the first obvious short-term support on the daily time frame. Below this, the area around $2530 is an interesting area, followed by $2500, where this year’s bullish trend comes into play.
Factors Supporting Gold Prices
Interest rate cuts are set to be a key driver for gold as we head into 2025. With inflation easing toward the Fed’s target and unemployment on the rise, the Fed responded last week with a 50-basis-point cut.
Markets anticipate an additional 50 basis points of cuts this year and 100bps next. However, if the economy deteriorates faster than expected, we could see more aggressive cuts, which would weaken bond yields and boost gold’s appeal.
Another factor supporting gold this year been central bank buying, with countries like China continuing to add to their reserves, even amid record-high prices.
However, this buying spree may taper off if global inflationary pressures cool, reducing the need for central banks to diversify away from fiat currencies.
Nonetheless, central banks are more likely to hold on to their gold stockpiles than offload them, sustaining a floor under gold prices.
Meanwhile, geopolitical risks remain a constant factor driving gold’s safe-haven appeal. Ongoing conflicts in Gaza, Ukraine, and other regions continue to fuel demand.
The upcoming US elections also add a layer of complexity. A potential Kamala Harris win, especially with a split Congress, could bring more political stability than a Trump-led scenario.
However, a Harris victory might also weaken the US dollar, indirectly supporting gold prices in the process.
Conclusion
So, while I am expecting to see some profit-taking soon, this won’t change my bullish long-term view on gold, which I have maintained for several years.
While the metal may be unable to reach the $3000 milestone this year, this level is my long-term objective for the yellow metal, due to expectations that major central banks like the Fed will be accelerating rate cuts, while factors such as ongoing geopolitical tensions and central bank gold purchases set a positive stage, too.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
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