Gold prices have been trading within a horizontal range between $5,000 and $5,200 over the past week until today. The strength of the US dollar and the rise in US Treasury yields across different maturities are currently among the main factors putting mild pressure on gold prices, in addition to the slowdown in central banks’ pace of gold purchases. Gold is currently trading near the $5,100 level.
Although market expectations that interest rates will remain elevated or could even rise tend to weigh negatively on gold, as it is a non-yielding asset, it should not be overlooked that gold is also considered a hedge against inflation. Therefore, expectations suggest that the upward momentum may continue in light of supportive fundamentals such as geopolitical and trade tensions, continued central bank purchases, and rising global debt levels, particularly US debt which has exceeded $38.5 trillion.
In addition, investor confidence in public finances has declined, especially at a time when government spending on defense and military activities has increased significantly. This requires financing through the issuance of government bonds, particularly long-term bonds such as 30-year Treasuries, which in turn has led some investors to reduce their holdings of these long-term government bonds. Gold prices remained up by about 20% since the beginning of the year, outperforming US and European equity indices as well as Bitcoin.
Therefore, gold can be considered the only asset with a clear direction in the coming period, namely an upward trend, in contrast to most other financial instruments such as equities, bonds, fiat currencies, digital currencies, and other commodities.
Markets are closely watching the release today at 16:30 UAE time of the US Core Personal Consumption Expenditures Price Index, which is the Federal Reserve’s preferred measure of inflation. Expectations indicate that annual inflation could rise to 3.1%, which is higher than the previous reading of 3.0%. Therefore, caution is warranted, as any inflation reading above expectations could negatively impact gold, implying further strength for the US dollar.
From a technical perspective, gold still shows a positive alignment in the 20-day, 50-day, and 200-day moving averages, all trending upward. The 20-day moving average remains above the 50-day moving average, while the 50-day moving average remains above the 200-day moving average. Meanwhile, the Relative Strength Index currently stands near 51, reflecting somewhat positive momentum.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
