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Gold Reaches New Record High

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at
  • Gold rallies amid expectations of a June rate cut.
  • Central-bank demand has been supporting gold prices.
  • Gold’s technical breakout points to higher prices.

Gold rises to a new record high

Gold has rallied strongly over the past week reaching a fresh intra-day record high of $2,160 per ounce on Wednesday amid expectations for interest rate cuts in the U.S. and global geo-political tensions. Gold generally attracts buyers in times of instability and given the current geo-political uncertainty, the upward momentum is likely to extend throughout 2024.

The Federal Reserve policy is likely one of the most important factors that could affect the outlook for gold prices in the months ahead. Gold does not yield any interest and higher borrowing rates are negative for the yellow metal. Expectation that the Federal Reserve will start cutting interest rates in the second half of this year as inflation gradually cools down, is seen as a tailwind for gold. When interest rates decline, gold prices typically rise as bonds become less attractive.

The price of the precious metal is likely to remain volatile in the coming months as the market reacts to macro drivers, tracking geo-political events and the Federal Reserve stance on interest rates. However, we are of the view that gold prices are likely to trade higher in 2024 as safe-haven demand is likely to support prices.

Central banks’ buying has been a pilar of support

Gold has performed quite well over the past year despite high interest rates and a strong dollar. The price of the bullion has risen from a low of $1,618 in November 2022 to a new record high of $2,160 on Wednesday. The impressive run could largely be attributed to the strong physical buying from central banks around the world and large investors positioning ahead of expected rate cuts.

Gold surged more than $110 over the past five trading sessions, driven by tepid U.S. manufacturing and construction spending, and moderate inflation. If price pressures continue to cool down, gold is likely to extend its trajectory higher.

A graph of stock market

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Source: TradingView

Gold completes a technical breakout

Gold’s massive rally from the November 2022 low has been a move within a large consolidation; however, Wednesday’s breakout above its previous multiple resistance of $2,089 marks the beginning of a new uptrend. This is the first decisive breakout since August 2020 with bullish implications over the long-term. The initial upside price target based on the breakout is $2,300; however, over the long-term levels to $2,400 appear easily achievable.

Over the past four months the Relative Strength Index (RSI) has been encountering support above 40% suggesting that buying support is strong, which adds further confidence in the breakout. The price structure is constructive with the sequence of higher highs and higher lows firmly intact.

Conclusion

Gold, which is often perceived as a safe store of value in times of economic and geo-political turmoil, benefits from central bank easing policy as it triggers a decline in bond yields and the U.S. dollar, making the precious metal more attractive.

According to the CME Fed Watch Tool, markets are pricing in a 66% chance of a 25 basis point rate cut in June. Investors usually start buying gold ahead of rate cuts, since non-yielding assets, such as gold, tend to perform well in lower interest rate environment.

Although the timing and magnitude of the US central bank’s rate cut path has been unclear, the wider expectation of coming cuts has helped the yellow metal hold above the $2,000/oz level over the past four months.

While the Federal Reserve’s wait-and-see approach will likely keep volatility elevated in the near-term, as well as other economic data such as the non-farm payroll report, such volatility is likely to be short-lived, as investors buy ahead of the expected interest rate cuts, which should keep the medium-term rally in check.

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.

Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.

Julian Manoilov

Marketing Lead

Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Oktay Kavrak

Head of Communications and Strategy

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.

Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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