Gold is up 15% for the year and remains supported



Gold prices are up over 15% for the year-to-date with the green 5-day moving average above the orange 10-day moving average in bullish formation. Whether this persists may depend on the Federal Reserve and the speed potential for rate cuts this year.

Gold is trading back above $2,370 and is closing in on record levels reached in April. Of interest, this uptrend has coincided with the Fed's interest rate pause and higher-for-longer narrative. However, the thinking is that rates will be cut later in the year and that inflation pressures will moderate. This is supporting the yellow metal, with a potential for more gains.

Lower interest rates often boost gold prices by weakening the U.S. dollar, making gold more affordable for buyers in other currencies and reducing the opportunity cost of the yellow metal.

However, a key dynamic is the demand for gold is coming from central banks, especially from China, India, and Turkey. These have been buying gold as a diversifier and a hedge against the greenback. But retail investor may be starting to pull their weight, which will act as an additional market force on the demand side. In April, North American gold ETFs saw inflows, reversing a trend of monthly outflows noted by the World Gold Council. Moreover, retail giant Costco has joined the gold fever by selling one-ounce gold bars last year and recently adding silver coins to its offerings.

A lot will depend on the Federal Reserve. If yields remain elevated, this may prove to be a headwind for the yellow metal. A key here will be a bearish cross in trend-following indicators on longer term charts as a precursor to an end of gold's uptrend. This has not happened yet and gold reamins supported.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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