Will the bullish rally in gold to an all-time high continue?
“Water is best, but gold shines like a blazing fire in the night, supreme of lordly wealth” – Line de Pindare, ancient Greek philosopher.
This line perfectly describes the characteristic of gold which has recently outperformed against other markets. Gold, as a store of value for over 2,500 years, returned nearly 8% in May due to mounting inflationary pressures and falling US real yields. Our gold report dated April 28, 2021, when the spot was around $ 1,775, hit its short-term target of $ 1,830 and $ 1,850. Plus, he’s currently citing near the next target of $ 1,920.
In the future, will gold shine more or lose its value? Let’s analyze the crucial factors that will decide the trend in the short and medium term.
US outperforms, but inflationary pressures support gold
The advances in vaccination in the United States have been remarkable as 57 percent of the population is vaccinated. In addition, a strong reopening with the presentation of masks in public created an optimistic environment. The hottest question lately is “will current inflationary pressures be transient or persistent?” If this question is put to the Fed, it will certainly answer “Transient”. But let’s check the reality. The current inflation rate is 4.2%, which is well above the 2% target set by the Fed. And expected inflation is at its highest level since 2013. In addition, the higher tax expenditure commitment of the Joe Biden administration and the ultra-loose monetary policy of the Fed should keep the inflationary environment intact. Thus, in an environment where the United States outperforms other markets, inflation could remain well above targets, and therefore the attractiveness of inflation hedging investments like gold would remain higher.
Digital Gold-Bitcoin failed to make presence, real gold in demand
When real gold suffered in the first quarter of the year, Bitcoin, the inflation hedge of the new era, soared and was also the result of increased institutional adoption. But the biting momentum after Tesla’s rejection and stricter crypto market policy from Chinese authorities halved the Bitcoin market from $ 64,000 to $ 30,000 in one month. The happy achievement of traders rekindles confidence in real gold again and may shed light on gold prices.
Growing interest in Gold ETF and favorable position of the CFTC
The largest gold ETF, the SPDR Gold Trust, posting holdings of 33.568 million ounces last Wednesday as of April 29, 2021, a figure of 32.669 million. Recently released data suggests speculative interest in gold has increased for four consecutive weeks as fund managers increased their gross speculative long positions in Comex gold futures from 2,086 contracts to 143,862 and decreased their positions. short of 13,179 contracts to 36,607. Overall, the market is positioning itself in favor of higher gold prices.
Technical analysis on gold
The weekly chart for international gold suggests that prices have escaped from a downtrend channel around $ 1,857. In the short term, the bullish momentum should continue until we reach our target of the $ 1950-1960 area. And if it breaks through those levels, in the medium term with a view of up to 3 months, it can be expected to hit the $ 2,000 and $ 2,075 levels. On the flip side, the $ 1857 breakpoint will act as crucial support levels below which the uptrend will turn its trend sideways or bearish.
Overall, we expect that as long as US economic data lags behind market expectations and members refrain from going belligerent, the actual return is likely to remain negative and therefore gold should be on the first page. The return of demand for gold as an alternative to Crypto is attracting trading and investment flows. Therefore, the rally in gold prices is expected to continue to levels of 1950 to 60 dollars. If crossed in a convincing way, goals of $ 2000 and $ 2075 can be easily set. For that, it should trade well above the strong support of $ 1857. The 24 karet gold from Mumbai which is currently listed at Rs. 47,900 / – (10 grm) is expected to test Rs. 49,500 / – at Rs. 51,000 / – due to the strength in prices international trends and the expected depreciation of the rupee against the US dollar. On the lower side, it has a key holder at Rs. 46,800 levels.
–Amit Pabari is Managing Director of CR Forex Advisors. The opinions expressed are personal.
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