Gold has had its best month in more than three years. It benefits from bets on lower interest rates in the United States and from its safe-haven status in times of geopolitical change. Yesterday, the yellow metal rose to a maximum of USD 2,225.09 (roughly CZK 52,200) per troy ounce (oz; 31.1 grams).
For the whole month, gold added nine percent, marking its biggest monthly gain since July 2020. It also posted its second consecutive quarterly gain.
Gold could rise further if markets begin to expect the US central bank (Fed) to cut interest rates significantly. It has potential”to hold at these highs, but we see signs of buying exhaustion in the short term,” said analyst Daniel Ghali of TD Securities.
Traders currently expect a 64 percent chance the Fed will cut rates in June, according to CME’s FedWatch tool.
Lower interest rates are good for the price of gold because they reduce its disadvantage against income-producing investments such as bonds. In addition, the prospect of lower US interest rates undermines the dollar, which lowers the price of gold from the perspective of holders of other currencies.
Prices are also rising because “that there is still great geopolitical tension worldwide“, which could prompt investors to turn to gold as a neutral reserve asset, said analyst Everett Millman of Gainesville Coins.
The price of gold (XAU/USD) is trading around the middle of a descending triangle on the 4-hour chart. Now it will be important in which direction the price will break through this formation and thus start a new trend. Traders can now wait for a clear breakthrough in one direction. However, the Stochastic indicator is already signaling oversold conditions, indicating possible bear exhaustion.
Gold falls despite support from central banksWe’ve had two full weeks of central bank meetings. Most of them came with strongly dovish comments and are thus expected to act to support cheap money in the coming months with the risk of higher inflation going forward. The European Central Bank is likely to expand its quantitative easing (QE) program and/or reduce deposit interest rates further into the negative, the Bank of England has made it known that it is in no hurry to raise interest rates, and even the Czech National Bank, according to the conclusions of its Thursday meeting, will not let the koruna stronger levels before the end of next year.
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