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Gold futures for December delivery (GC=F) settled at $1,993.50 on Thursday.
Gold is now flirting with the $2,000 price level for the fourth time since reaching that psychologically-important level for the first time back in 2020.
And after gold prices in dollars reached a record high near $2,100 an ounce that same year, the sideways chop has frustrated bulls and bears alike.
The latest pop in gold — which has rallied almost 10% since early October — comes as the dollar’s move higher stalled and Treasury yields have backed off 16-year highs. The interplay between gold, the dollar, and rates can be nuanced, but broadly speaking higher rates and a higher dollar tend to weigh on the yellow metal. And vice versa.
Last week, Ned Davis Research upgraded gold to “bullish” after a few weeks in “neutral” territory. The firm — which has been bullish gold 80% of the time since 2016 — explained that it never turned outright bearish because the long-term price uptrend in gold remained intact.
“In returning to [a bullish stance], we are responding to a new buy signal from the short-term gold model, with the long-term model still bullish in rising to a maximum reading of 100%,” the firm wrote. The firm also maintains a complementary bearish recommendation on the dollar.
“I started out this year thinking that gold could go to $3,000 an ounce,” Michele Schneider, partner and director of trading education and research at MarketGauge.com, told Yahoo Finance’s Ines Ferré earlier this week.
“I still think it’s very possible. Especially given everything that’s going on [in markets].”
And other market commentators are seeing bullish patterns in gold charts spanning back a dozen years to the metal’s then-record high in 2011.
Whether a cup-and-handle pattern, or inverse head-and-shoulders, the sheer temporal size of the price action points to a material and lengthy upside if and when the big breakout finally occurs.
But investors may have to wait a bit for a monster rally in gold.
Alfonso “Alf” Peccatiello, founder and CEO of The Macro Compass, offered some caution for gold bulls based on market history. In a note to clients, Peccatiello said the current environment “eerily resembles late 2007.” Yields in those pre-crisis days were persistently high, and bank stocks got hit while the price of gold surged. “Sound familiar?” asks Peccatiello.
Indeed, gold rallied over 50% from the beginning of 2007 into mid-March 2008. The failure of Bear Stearns ignited a disinflationary wave that ultimately killed off the rallies in gold, crude oil, and other commodities.
In 2008, gold prices got sliced by a third before finding their footing. And amid the dawn of near-zero rates and the birth of quantitative easing in the US, gold rallied some 175% off its 2008 lows to a record over $1,900 an ounce, which wasn’t eclipsed until the pandemic.
In the current macro environment, high rates reward investors sitting in cash handsomely, and stores of value like gold — and bitcoin — can take a back seat.
But if the Federal Reserve is indeed done raising rates, as many investors think Fed Chair Jerome Powell suggested on Wednesday, then lower rates in the future may lift obstacles standing in the way of a further rally for gold.
Though if the Powell Fed is clear on any message right now, it’s that investors betting on these outcomes may need to exercise patience.
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