Gold Rush Continues

Gold prices have broken out to fresh all-time highs today as the rally in the yellow metal continues to push on. Dovish signalling by the ECB yesterday has helped feed into bullish sentiment in gold as traders continue to expect a decline in real rates across the G10. Indeed, the rally comes despite the current uptick in USD on the back of another hotter-than-forecast CPI print this week. Fed easing expectations have been pushed further out, leading USD higher for now. However, it seems that safe-haven inflows and central bank buying are helping drive gold higher nonetheless.

Safe-Haven Flows

Rising geopolitical risks around the globe have fuelled a sharp increase in safe-haven demand this year. The ongoing war between Russia and Ukraine as well as the Israeli assault on Gaza have both created an atmosphere of uncertainty for investors. News this week that Iran is reportedly preparing to retaliate against Israel following the killing of senior Hezbollah commanders is creating fresh uncertainty. Against this backdrop, gold prices look likely to continue higher. With the ever-growing risk of a wider conflict emerging in the Middle East, gold prices are vulnerable to upside shocks on any headlines reflecting an escalation of violence.

Central Bank Buying

A by-product of the heightened geopolitical risk we’re seeing is the increased demand for gold from central banks. Central banks have been net buyers of gold since 2020, reflecting a shift in appetite in response to the pandemic. However, central bank gold buying has been growing this year, a dynamic which looks likely to continue and should keep gold supported near-term.

Technical Views

Gold

The rally in gold prices has seen the market breaking out above the bull channel highs and above the 2364.93 level to fresh highs. For now, the outlook remains firmly bullish. Divergence in momentum studies suggests some reversal risks. However, while any correction holds above 2221.39, the focus remains on a continued move higher.