Key Points
- $3,000 is the financial world’s new topside target for gold.
- Fed rate cuts, Chinese demand, and geopolitical uncertainty are the key market drivers.
- Key XAU/USD support zone: $2,293 – $2,271
Market Overview
Bullish sentiment has dominated the 2024 gold market, evidenced by a 13.50% rally. However, the past two weeks have been a challenge for gold bugs. Prices are off more than 3.25% in a sustained 10-session pullback.
Is the top in for gold? At press time, traders say no. The XAU/USD is up nearly 0.75% in early-week trade.
Gold To $3,000?
For decades, metals traders contemplated gold breaching the $2,000 threshold. Now, the goalposts have been moved to $3,000. Over the past two months, megabanks Citigroup and Bank of America (BofA) have issued gold projections hitting $3,000. Why? Three reasons: Chinese demand, Fed rate cuts, and broad uncertainty.
BofA commodity strategist Michael Widmer suggests that the Fed could drive gold to $3,000 by 2025: “If the Fed starts cutting rates, investors should return to the market, offsetting potentially lower Chinese investment demand as sentiment improves. We had previously proposed a $2,400 price estimate if the Fed cut rates in 2024; we now raise that to $3,000 by 2025.”
Ultimately, broad geopolitical and political uncertainty is the backdrop for the bullish gold market we see today. Multiple wars and the US Presidential Election are key drivers of safe-haven demand; mix in Fed rate cuts and a bullish bias is confirmed.
The Bearish Case For Gold
For every bull, there is a bear. In the case of gold, this old axiom is currently being tested. Painting a bearish picture of bullion between now and New Year’s Eve is challenging. But, two things can derail the rally in short order.
Number one: Fed rate hikes. Inflation has persisted for the past 18 months, much more than expected. If the Fed has to issue a surprise rate hike, then bearish gold would follow in the short term. Number two: resolutions to Russia/Ukraine and Israel/Hamas. A swift decline in geopolitical uncertainty is sure to send gold tumbling.
Are rate hikes and ceasefires likely? At this time, no. But, they are possible. If these drivers come to pass, the gold could easily fall beneath $2,000.
Technical Outlook
Given the market’s bullish bias, looking for buying opportunities in the XAU/USD is a solid course of action. A key support level is present at the 13-week EMA ($2,293.08). Beneath that, the monthly 38% Fibonacci retracement level ($2,271.47) is robust support.
Bidding the $2,295 area isn’t a bad way to play the action. If tested, the bullish entry is likely to produce at least a $5 intraday pop.
If you’re trading gold this week, be aware that US Non-Farm Payrolls comes out Friday at 8:30 AM EST. This event will drive volatility to the bullion market; be sure to have your exposure in check well ahead of this key economic release.
Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.
