Today saw gold hit a new record high after crossing the $2600 mark. The metal is due for some profit-taking in the not-too-distant future, but I maintain a modestly bullish gold outlook for the rest of the year. The metal may be unable to reach the $3000 milestone this year, but 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.
Interest rate cuts and their impact on gold outlook
As mentioned, one of the primary drivers for gold is the likelihood that the Fed will accelerate its rate-cutting in early 2025. Inflation has been moderating towards the Fed’s target, while unemployment is climbing, prompting this week’s 50 basis point rate cut. The market currently expects around 100 basis points of cuts for the year as a while, and 100 more next year, but if economic conditions deteriorate faster than expected, rate cuts could be deeper, weakening bond yields and further boosting gold's appeal. However, the opposite is also true: a surprisingly strong US economy and labour market next year coupled with the prospects of inflation remaining high will discourage the Fed from sharply reducing interest rates.
Central bank buying likely to slow
Meanwhile, central bank purchases have also supported the bullish gold outlook. Gold buying by central banks such as the People’s Bank of China have ben robust despite record-high prices. But demand from this source may weaken if global inflationary pressures ease further, thus lessening the desire to diversify reserves away from fiat currencies. That said, central banks will likely hoard their gold stockpiles than get them off their balance sheets.
Plenty of geopolitical risks
Geopolitical risks, such as ongoing conflicts in Gaza, Ukraine, and elsewhere, will ensure to sustain gold’s safe-haven demand. Additionally, the approaching US elections could impact gold prices, albeit in a more nuanced way. A Kamala Harris win with a split Congress is how things look like currently over there. One can expect to see a more stable political landscape, than under Trump. Still, a Harris win could weaken the US dollar, which indirectly favours gold.
Gold outlook: Technical analysis and levels to watch
Source: TradingView.com
Technically, the gold chart remains in a strong uptrend so it is anyone’s guess how far the metal could rise. But do watch out for profit-taking and short-term reversal signals given the fact that momentum indicators like the RSI are pointing to overbought conditions, especially on the long-term weekly and monthly time frames, which is significant. As the metal is trading at record levels, the next obvious target is the $2700 mark, now that $2600 has been breached. Key support levels include $2600, followed by $2530 and finally $2500 on the daily time frame.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
