Gold prices retreated on Wednesday due to profit-taking, but analysts say the outlook for gold remains bullish across the board, with attention to support levels in the short term...
After setting consecutive historical highs, gold fell back from the area near $2,750 on Wednesday as traders took profits.
As of press time, spot gold has lost $2,720 per ounce, falling nearly $40 from the daily high, with a daily drop of over 1%. Spot silver has plummeted by 3% during the day.
Amid ongoing Middle East conflicts and increasing uncertainty surrounding the U.S. election, investor demand for safe-haven assets has been the main driver of gold's recent rebound.
Although opinion polls show a neck-and-neck race between former U.S. President Trump and Vice President Harris, the market is betting on the increasing probability of Trump's victory, which is seen as a threat to a stable geopolitical outlook.
Another factor driving gold higher may be the attention given to the BRICS 2024 summit. Its members (especially Russia) are seeking to find an alternative to the dollar's dominance, and gold-backed currencies are touted as a viable alternative.
However, what limits the gains of precious metals is the global bond market crash, as investors believe that the pace of global interest rate declines is slower than previously anticipated.
This adjustment in outlook is most evident in the United States. Traders now have a more moderate expectation for the Federal Reserve's interest rate path. With the expectation that interest rates and the dollar will remain relatively high, gold, as a non-interest-bearing asset, has lost some of its luster.
Prashant Newnaha, Senior Interest Rate Strategist for Asia-Pacific at TD Securities, said, "The sell-off in U.S. Treasuries intensified this week due to market concerns that if the Federal Reserve eases policy against a backdrop of a strong economy, it could reignite inflation."
In addition, he also pointed out, "The continuously increasing probability of Trump's victory has also weakened the market's expectation that the Federal Reserve will continue to cut interest rates in 2025, and it cannot be ruled out that the Federal Reserve may remain on hold in the first six months of next year."Fxstreet analysts have noted that the gold rally has paused and retreated below the psychological level of $2,750. The Relative Strength Index (RSI) is overbought, indicating the risk of a pullback, and it is advised that bulls should not increase their positions.
Should the RSI close within a neutral range, it would signal for bulls to close their positions and switch to shorting, as a deeper correction may be on the horizon. Support levels are situated at $2,700 and $2,685 (September highs).
However, the overall strong uptrend in gold suggests that any correction is likely to be brief, after which the broader bullish trend will resume.
Gold is in a steady upward trend across all timeframes (short-term, medium-term, and long-term), and given the adage that "the trend is your friend," gold tends to have more room to rise. If it can stabilize above $2,750, bulls may set their sights on the $3,000 milestone.