Gold price surged to a nine-month-high, how far can it go

[MongiIG]

The gold price has increased more than 8% in 2023 to a nine-month-high at $1937. What are the key drivers behind the rising appetite for precious metals?

Source: Bloomberg

 

Gold Commodities Inflation

Hebe Chen | Market Analyst, Melbourne | Publication date: Thursday 26 January 2023

 

Gold recovers its shine in 2023.

In the first three weeks of the new year, the gold price has increased more than 8% to a new nine-month-high at $1937. This momentum could track back to early November 2022. Since then, the value of yellow metal has soared by nearly 20%.

Gold price: what are the key drivers?

Traditionally, Gold was viewed as an inflation haven. As the value of the US dollar dip, investors are buying the precious metal to preserve the value for money.

Just this time, the rising appetite for gold is not only bolstered by the retail or institutional investors, but also the global central banks.

According to the World Gold Council, during the first three quarters of 2022, the global central banks had purchased over 670 tonnes of gold, a pace never seen since 1967. Among all the major central banks, China and Turkey are the biggest fans (refer to the chart below).

After being quiet for three years, the People’s Bank of China (PBoC) kept increasing its month gold purchase from the fourth quarter and has stockpiled 2011t shining metal so far.

Gold: Why central banks are stockpiling yellow metal?

The global inflation crisis and the projected volatilities of the greenback are the primary reason to see central banks falling in love with precious metals instead of greenbacks.

Like in history, the love for gold stems from its unique strength that is relatively stable thanks to its independence from any individual economy, especially in times of high inflation and volatility.

Additionally, the yellow metal offered extra function in 2022. Since March, the West's sanctions on Russian have frozen much of Russia’s foreign currency reserves. As such, for those countries that have to keep trading relations with Russia, Turkey, for example, the shinning commodity offers an alternative to exchange.

Gold price: Technical Analysis

Either from the weekly or the daily's technical chart, the price of gold has demonstrated a strong momentum into the new year. On the weekly picture, the price has climbed for six straight weeks and moved above all the major moving averages.

In the near term, the price might take a breather since both the weekly and daily RSI have reached the overbought territory. However, the mid-term sentiment should stay valid if the price remains in the ascending trajectory. In this scenario, the buying opportunity may surface if the price pulls back to the imminent support near $1920. On the other hand, the next challenge in view sits at around $1960.

Source: IG

Source: IG