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Blowout top leaves Gold in consolidation mode
Commodities
Ole Hansen
Head of Commodity Strategy
This content is marketing material
Key points:
- In the commodities market, the spotlight remains firmly on gold, which this week surged to a new all-time high of USD 3,500 before suffering a violent 5% correction.
- The latest market turbulence unfortunately unfolded during the Easter period, when several trading centres were closed, leaving liquidity at a premium.
- From a technical perspective, the blowout top around USD 3,500 and sharp reversal has, in the short term, raised the prospect of consolidation with the first level of support at USD 3,292.
- Also, in this a non-scientific observation on gold and the need to watch activity in Asia, the biggest source of demand throughout the last month.
The spotlight in the commodities market remains firmly on gold, which this week surged to a new all-time high of USD 3,500—marking an impressive 33% year-to-date gain—before suffering an equally violent 5% correction. This rapid ascent means the yellow metal has already reached our recently upgraded price forecast far earlier than anticipated, but it also increasingly raises questions about the yellow metal's ability to continue higher without, at a minimum, going through another period of consolidation. Gold’s meteoric rise underscores a broader trend in the commodities space, which continues to be heavily influenced by macroeconomic and geopolitical developments—particularly the intensifying trade war between the United States and China. As the world’s two largest economies clash, concerns mount over its potential drag on global growth and risk of rising inflation. In addition, the weaker US dollar, de-dollarisation from several central banks, and concerns about the fiscal debt situation in the US have also been key components behind the year-long gold rally. The latest market turbulence unfortunately unfolded during the Easter period, when multiple countries and trading centres were closed, leaving liquidity at a premium, forcing bigger-than-normal market reactions to the news flow, which included renewed political pressure on the US Federal Reserve. President Trump once again challenged the Fed's independence by publicly urging a rate cut—a move that rattled financial markets. Stocks slid further, and the US dollar fell to a three-year low. However, the very negative market reaction to the attack, which ultimately could have triggered a financial crisis, saw Trump do a 180, saying he had no intention of firing Jay Powell—a stance that also gave the President an opportunity to position Powell as a convenient scapegoat for a looming economic slowdown in the US. Together with a softening stance on China tariffs and renewed hopes for a peaceful solution to the Russia-Ukraine war, the market got an injection of adrenaline, which helped send stock markets sharply higher while the US dollar regained some ground. Having benefited greatly from market worries, gold went in the opposite direction, losing 5% within a short period of time as fear-of-missing-out and momentum trades exited the market. From a technical perspective, the blowout top around USD 3,500 and sharp reversal has, in the short term, raised the risk of a deeper correction. However, using Fibonacci levels as a guide, the gold price has so far managed to find support at USD 3,292, the 0.382 retracement level, which for now signals a weak correction within a strong uptrend. A deeper correction could see traders focus on USD 3,228 and the big one at USD 3,164, a break below which could signal a return to the USD 3,000 area.
A non-scientific observation on Gold
Over the past 20 years, when gold has become significantly stretched—either upward or downward—relative to its 200-day moving average, a correction has typically followed. Yesterday’s dramatic surge to USD 3,500 saw the spot price trade more than 20% above its 200-day moving average. If historical patterns hold, gold may now enter a prolonged consolidation phase to allow the moving average to catch up. That said, central bank demand—one of the primary drivers since 2022—is unlikely to respond to technical signals like these, potentially preventing a repeat of past behavior. In the days ahead: Watching Asia’s reaction
In the coming days, it will be important to monitor the response from traders and investors in Asia—a key and consistent source of demand in recent months. Data from Morgan Stanley, which tracks “pit” versus “non-pit” trading activity in COMEX gold futures, shows a notable divergence: over the past month, gold futures declined by 5.9% during the “pit” session (08:20 to 13:30 EST), while gaining 14.7% during the “non-pit” session, which includes Asian and European morning trading.
While the short-term outlook for gold has become more challenging—particularly if the U.S. President adopts a less aggressive tone—some nervous calm could return to markets as we await greater clarity on the impact of tariffs on economic growth and inflation. We continue to maintain a positive long-term view on gold. However, having reached our USD 3,500 target, further upside beyond may require a worsening of economic or political conditions.
A reminder of some of the major supportive drivers for gold.
US Fed Funds rate expectations: Market participants closely watch interest rate expectations set by the Federal Reserve, as they heavily influence the attractiveness of gold. Currently, the futures market is pricing in the possibility of a 75–100 basis point rate cut before year-end, suggesting a more accommodative monetary policy. Lower interest rates reduce the opportunity cost of holding gold (which doesn’t pay interest), thereby supporting its price.
Investment demand for “paper” gold through futures and exchange-traded funds (ETFs): The demand for gold-backed financial products depends on technical market factors, such as price momentum, as well as macroeconomic indicators. In addition, a key factor for investors in ETFs is the cost of holding a non-yielding assets like gold, with the prospect for lower funding cost and recession worries boosting demand. Current known holdings in bullion-backed ETFs stands at 2773 tons, up 269 tons from last May but still well below the 2020 record peak at 3453 tons.
Rising US inflation expectations: Investors often turn to gold as a hedge against inflation. Recently, falling real yields (nominal yields minus inflation expectations) across the US Treasury yield curve have signaled growing concerns about future inflation. As inflation expectations rise, the real return on fixed-income assets decreases, increasing the relative appeal of gold.
Geopolitical risks: Global instability tends to push investors toward safe-haven assets like gold. A recent correlation between defense stocks and gold suggests that as geopolitical tensions rise—such as conflicts, wars, or diplomatic strains—investors seek safety in gold, thereby supporting its price. In addition, the current trade war adds downside risks to growth while lifting the geopolitical temperature, especially between the US and China, the world's two biggest economies.
Central bank demand amid continued focus on reducing dependency on the USD: A growing number of central banks are diversifying their reserves away from the US dollar, often turning to gold as a neutral reserve asset. Notably, China, India, Turkey, and Russia have been leading this trend. In the last three years to 2024, central banks bought more than 1,000 tons in each year, a process that looks set to continue in 2025 and beyond, thereby underpinning the market as supply is being removed from the market. Strong Asian demand, particularly from Chinese investors, driven by concerns over domestic economic instability, weak real estate and stock markets, and as a hedge against potential Renminbi devaluation amid tariff-related export pressures.
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