Gold’s mega rally took another upturn on Tuesday as it begins to test its next major hurdle of $2,000 ounce.
Spot gold advanced 0.8% to $1,992.63 per ounce by 11:30 a.m. EDT, after reaching an intraday high of $1,993.75 earlier.
Bullion has surged 30% so far this year to a record high and is one of the best-performing assets in 2020 as a result of increased safe-haven demand during the coronavirus pandemic.
Bullion has surged 30% so far this year and is one of the best-performing assets in 2020
Investors are driven by the belief that the metal will hold its value better than other assets as fallout from covid-19 ripples through the global economy.
In the US, the worlds’ largest economy, central bank stimulus has pushed inflation-adjusted bond yields to record lows, making non-yielding gold more attractive. The dollar has also weakened sharply, making bullion cheaper for buyers with other currencies.
Gold’s current rally towards $2,000 is facing a fierce technical resistance, but an eventual break above that level is likely, freeing prices for more record highs, technical analysts told Reuters.
“The never-before-reached $2,000/oz is a major psychological resistance level, with gold’s 49-year trend channel resting just below it at $1,983,” said Commerzbank technical analyst Karen Jones.
“Only an end-of-month or, better yet, end-of-quarter close above these levels will signal a break from the channel,” she added.
However, because the rally has been so fast, a downward correction is likely and could be brutal, analysts said, before the market attempts another stab higher.
Early support is coming in around its 20-day moving average at $1,875 and the bottom of its 4-month uptrend around $1,830.
“Below that is more powerful support at the 20-week moving average, currently at $1,755,” said Tom Pelc, an independent technical analyst formerly at Nomura and RBS.
Such a fall would not necessarily equate doom the longer-term uptrend, analysts posited.
“We continue to see this improving volatility backdrop, so there’s no sign that the long-term trend is changing,” said Richard Adcock, a former UBS and now independent technical analyst. “The market can carry on higher than people expect.”
If resistance is broken, Fibonacci extensions offer short-term targets. These are based on the idea that a rally will extend in predictable proportions extrapolated from a previous rally.
“One is at $2,067, another comes in at $2,286,” said Pelc.
“Lucas ratios — a tool using a sequence of numbers similar to Fibonacci’s — suggest gold could rise to $3,598.80 an ounce in 4-5 years,” he added.
(With files from Reuters)