The Week Ahead
The gold market started the trading week off on a strong note. Spot prices gained over $20 per ounce as buyers flocked into the market as cryptocurrencies took a hit. Shaky equity markets also likely played a role in gold’s upside Monday. In addition to the several key bullish issues the markets are considering, the bullish daily price charts are also attracting buying interest.
The gold market’s push Monday to above its 200-day moving average suggests further upside could be in the cards. The metal’s recent bullish price action has again attracted the attention of larger market players. According to the Commodity Futures Trading Commission (CFTC), the metal has once again seen an increase in the number of speculative long positions by money managers as the number of bearish positions declined. Net long positions in the market soared by over 50% since last week, and the market could be at the beginning stages of a significant rally period that could see it reach previous all-time highs or beyond. The breakout above the $1800 level seems to be a big factor in the latest reversal of gold’s fortunes, and the breakout above this level has triggered additional buying interest in the market.
The copper market has been smoking hot in recent trade, and last week’s fresh all-time highs could also be a bullish factor for gold. Copper has not only been impressive in recent months, but could have significant additional room to grow as supplies shrink and demand rises.
Also adding fuel to the fire is higher crude oil prices. Blackl gold hit the highest level in over two years Monday and could point towards rising inflationary pressures in the months ahead. As the price of crude heads higher, demand for gold could also rise as investors seek out asset classes that may act as an inflation hedge.
The three month high hit in gold today may also be partially due to a decline in treasury yields. Easing yields for the benchmark 10-Year Note could be a major factor for gold in the months ahead. With yields having likely reached a swing high for the time being, any further easing may be bullish for gold as it lessens the opportunity cost of holding the metal. Investors will now turn their attention to Wednesday’s release of the latest Fed meeting minutes, looking for any clues about the central bank’s future plans and concerns over inflation.
Gold’s recent rise coupled with its upside breakout above the 200-day moving average have the bulls in from control on the daily chart. The bulls will look to extend that control and may target the $1900 level in the sessions ahead. With little upside resistance in gold’s path, the yellow metal may now make a swift move towards previous all-time highs. A challenge of those highs may become increasingly likely if current market trends remain firm. A breakout above the previous high on a closing basis could pave the way for a sharp and rapid move higher in gold that could see the metal moving quickly towards the $2500 and then $3000 levels.