Gold update: Is now the best moment to buy?

Gold prices have experienced a significant rally since hitting their lows in March, currently trading around $1,935 per ounce. Several factors have contributed to this upward movement, including a weak dollar, concerns about a potential recession, persistent inflation, and the possibility of a pause in interest rate hikes. These circumstances have bolstered the value of the precious metal, as it is often viewed as a natural hedge against inflation and a safe-haven investment during economic downturns.

One key driver of gold's price increase during times of inflation is its denomination in US dollars. As inflation erodes the value of the dollar, the dollar-denominated price of gold tends to rise, offsetting the decline and providing investors with a means of preserving their wealth.

The recent decision by the Federal Reserve to pause its tightening policy has the potential to further support gold prices. If the economy shows signs of negative growth, the Fed might even consider implementing interest rate cuts in 2024. Such a move could serve as a bullish catalyst for gold, as it suggests that the central bank is taking measures to stimulate economic activity, potentially leading to increased demand for the precious metal.

On the other hand, keeping the monetary policy tight and maintaining high interest rates for an extended period may have a negative impact on gold.

Technical analysis points to potential retracement and bullish breakout for gold prices

From a technical analysis perspective, gold recently broke below the lower line of an upside channel and slipped beneath the Fibonacci level of 23.6% for the previous upward movement, reaching $1,972. If the price of gold continues to trade below this channel, it may experience a deeper retracement in the medium term. In such a scenario, the correction could extend to the 38.2% level at $1,903, followed by the 50% level at $1,850.

However, a bullish scenario could emerge if gold manages to breach the resistance line at $1,971. Such a breakthrough could pave the way for further gains, with potential targets at $2,030 and $2,070.

Looking ahead to the long-term outlook, gold may require a shift in the tightening policy towards interest rate cuts as the global economy grapples with the impact of a recession. Should this occur, it could provide the necessary momentum for gold to reach new record highs, potentially surpassing the $2,150 mark. To maintain this upward trajectory, it would be crucial for gold to continue trading above the $1,850 level.