Gold Premonitions: Gold price surge nearing peak: signs pointing towards unexpected reversal
Gold Reaches New Heights Amidst Central Bank Purchases and Fed Rate Cut Expectations
Gold prices have soared to unprecedented levels, reaching a new record high of $3,703 on Tuesday. The rally has been driven by a variety of factors, including sustained central bank purchases, a weaker dollar, the prospect of Fed interest rate cuts, and geopolitical risks.
The US Federal Reserve's interest rate decision on Wednesday evening could be a crucial risk event for the precious metal markets. Markets have significantly raised their expectations of rate cuts, with investors currently banking on an immediate rate cut and expecting two more steps later in the year. However, the Fed has only indicated two cuts so far, which could potentially dampen investors' hopes if Fed Chair Jerome Powell does not signal additional rate cuts.
Despite these short-term risks, the fundamental outlook for gold remains intact. Geopolitical uncertainties, inflation concerns, falling Fed rates, and continued central bank purchases speak for sustained strength in the medium to long term. Analysts such as those from JPMorgan and Goldman Sachs remain positive about gold in the long term, illustrating a shorter correction in the gold price while expecting the price to rise further.
JPMorgan expects the price to fluctuate around $3,000 per ounce, with bullish drivers like inflation and central bank demand. Goldman Sachs predicts a further record rise to around $3,000 by the end of 2025, supported by geopolitical risks and central bank purchases.
A potential pullback could bring the gold price back to its old all-time high of $3,500 or to the breakout level of $3,430, and even reach the area around $3,400, where the 50-day line serves as important support. Triggers for this potential pullback could be the 'news today' effect following the upcoming central bank meeting or reallocations by investors into other precious metals and cryptocurrencies.
From a technical perspective, gold is in an uptrend, but signs of strong overheating are increasing. Historically, such extreme overreactions have been followed by price corrections of 20 to 30 percent. The RSI, a technical indicator, is sending a classic early warning signal for an impending correction.
Investors should not ignore the growing risk of a technical correction and consider waiting for a pullback before making new investments. It is important to note that the fundamental and technical analysis provided does not constitute investment advice, it is not a buy or sell recommendation for financial instruments, and any liability for direct or indirect consequences resulting from these suggestions is excluded.
The gold price outperforms the US leading index S&P 500, which has recorded a gain of only 12 percent this year. The rally had accelerated recently due to weak labor market data and significant revisions to employment figures, as markets now price in three Fed interest rate cuts this year.
In conclusion, gold prices have reached new heights, driven by a combination of fundamental and technical factors. While short-term risks exist, the long-term outlook for gold remains positive, with analysts predicting further record rises in the coming years. However, investors should exercise caution and consider the potential for a correction before making new investments.
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