Gold holds firmly above $2600, clear path to $3,000?

Gold continued its impressive rally on Tuesday, hitting new record highs during the Asian session, as prices soared to $2,635.05 before settling at $2,627.34 by midday U.S. trading. Investors are closely monitoring the Federal Reserve’s next moves as expectations of further rate cuts continue to fuel gold's ascent. With the precious metal holding firmly above the $2,600 mark, how high could it go?

The spotlight is now on the Federal Reserve, with key speeches from FOMC members this week and the upcoming U.S. Personal Consumption Expenditures (PCE) Price Index report on Friday. These events could provide critical clues about the Fed's next steps, especially concerning further interest rate cuts, which could have a say on the Yellow metal’s price action.

The Federal Reserve Bank of Minneapolis President Neel Kashkari signaled smaller, quarter-point rate reductions at the Fed’s two remaining meetings this year. Such monetary easing tends to support gold, as lower interest rates reduce the appeal of yield-bearing assets and make non-yielding gold more attractive to investors.

Potential upward triggers in plain sight

Even at current elevated prices, the yellow metal still looks like an attractive proposition for portfolios, with persistent economic uncertainties clouding the global outlook. 

From geopolitical tensions in the Middle East and Ukraine to inflationary concerns and heightening political temperatures in the U.S, gold’s role as a safe-haven asset continues to shine. In uncertain times, gold tends to perform well, offering stability and acting as a portfolio diversifier that helps mitigate overall risk. 

Another factor driving Gold is the strong demand from central banks. Around the world, central banks are increasing their gold reserves, seeking to diversify away from traditional currencies. 

Sources: Metals Focus, World Gold Council

According to the World Gold Council, Central banks added 1,037 tonnes in 2023, the second-highest annual total. This trend continues, with 29% of central banks surveyed in 2024 planning to increase their gold reserves, the highest percentage since 2018. This bolsters the case for further price increases potentially pushing prices toward the $3,000 mark.

In addition to investment and central bank demand, gold is seeing increasing use in technological applications. The electronics industry, particularly in the production of smartphones and computers, values gold for its conductivity and resistance to corrosion. Emerging technologies in renewable energy and the medical field are also driving new sources of demand for gold. As these applications expand, they could provide a long-term driver of sustained demand, further supporting higher gold prices in the future.

In addition to those factors, supply side concerns for gold could support prices, as the yellow metal remains a finite resource, with new discoveries becoming increasingly rare. Existing mines are producing less, and the long lead times required to bring new mines online mean that any significant increase in supply is unlikely in the near term. 

Technical outlook: A Path to $3,000?

As traders wait for more economic data and signals from the Fed, gold could be well-positioned to continue its upward trajectory. If geopolitical tensions persist, economic conditions worsen, or the Fed continues to cut rates, the $3,000 milestone may not be far off. At the time of writing, prices remain elevated at around $2,628 with bullish signals apparent as price remains elevated above the 100-day moving average with strong upward momentum. However, RSI edging softly into the overbought region could hint at a slowdown in momentum and a potential pause. Buyers could be held at the $2,637 mark on the way up towards $2,700. On the downside, prices could hold at the $2,580 and $2,550 support levels.

Source: Deriv MT5

Disclaimer:

The information contained within this article is for educational purposes only and is not intended as financial or investment advice.

It is considered accurate and correct at the date of publication. Changes in circumstances after the time of publication may impact the accuracy of the information.

The performance figures quoted refer to the past, and past performance is not a guarantee of future performance or a reliable guide to future performance.

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