Gold prices rose to an all-time high on Monday, despite US markets being closed. The yellow metal has risen rapidly over the last week and a half, pushing the daily RSI into overbought territory. Monday’s trading also failed to close above the key $ 3,500-per-ounce level. So, the question for traders is whether technicals force a correction, or is there something fundamental to push the price higher.
One of the difficulties for gold right now is that there wasn’t a specific catalyst to drive the record high. Rather, it came as a result of several issues over the prior days, which might mean the upside is a bit exhausted. On the other hand, those issues supporting gold haven’t gone away, which means the upward pressure from fundamentals likely remains intact.
Markets Shy of Risk
September is traditionally the worst-performing month for stocks in the US market. This typically means that investors will be more willing to invest in safe-haven assets, such as Treasury bonds and gold. The balance of which gets preference could be pivotal for the future price of the yellow metal.
If yields on Treasuries are lower, for example, as a result of a rate cut, then gold might be the preferred investment. US stock markets are overvalued in terms of historic price-earnings ratios, which leaves the market “top-heavy”. Risk aversion would mean that investors will look for a store of value, which could explain why precious metals, such as gold and silver, are hitting all-time highs this week.
Tariff Uncertainty Moves the Market
One event that contributed to gold prices on Monday was the resolution of a federal appellate court ruling in Washington, DC, which found that US President Donald Trump exceeded his authority in applying “reciprocal” tariffs. The court left the tariffs in place until the Administration could appeal. There are other legal frameworks the White House could use to apply similar tariffs without seeking approval from Congress.
The decision didn’t alter current circumstances, but it injected additional uncertainty into the trade arena. Trade is intimately related to forex, of course. And with major economies moving towards de-dollarisation, gold could take priority. Last month saw the first time in nearly three decades that central banks around the world held more gold than dollars as a reserve. Even without the demand for gold, continued dollar weakness would support gold prices.
Is It All to the Upside?
While current circumstances, such as the increased odds of a Fed rate cut, support the picture of gold rising, these circumstances are not necessarily permanent. A resolution of the conflict in Ukraine could help reduce some of the geopolitical risk. More clarity on what will happen with Fed nominees could reduce worries about the independence of the US central bank.
Perhaps more crucially, there is the evolution of the US economy. Traders are selling the dollar due to high stock valuations and high interest rates. However, signs that the US economy is thriving could alleviate valuation pressure and attract investors back. This week’s NFP, next week’s CPI and the week after’s Fed meeting all loom large on the gold horizon.