Anyone with trading experience knows that no market goes up (or down) forever. However, trying to pick a top (or bottom) in a runaway move can be painful or fatal to one’s account.  A  current example is the uptrend in spot gold, which has again set a record high.
So, let’s take a deep breath and look at the factors supporting hold and whether it all holds together.
- Technical indicators and strong momentum
- Central bank purchases
- Geopolitical concerns from conflicts in the Middle East and Ukraime
- Falling but sticky inflation
- Expectations of Fed interest rate cuts
Does it all hold together?
Looking at these factors points to a mixed picture that does not totally hold together.
If gold is benefiting from it’s role as a safe haven during the current geopolitical crises, why aren’t other markets (e.g. stocks, bonds)   being affected by similar concerns?
Expectations of Fed rate cuts have been pared back yet gold has continued to rise.
While inflation has stayed sticky, it has been coming down, which should ease gold’s use as an inflation hedge.
What else may be driving gold higher?
I am not privy to the workings of the gold market but it seems clear that demand is overwhelming supply. This has me thinking that there may be more to its relentless rise than traditional factors.
In a world where sanctions have been levied with the risk of more to come, there are not many places to hide your assets from being frozen or seized. One place is in the crypto market, which may account for the rise in the value of Bitcoin. Another may be in gold.
I am not saying that this is behind the rise in gold but if it at all true, it would explain some of the imbalance driving it higher. Let’s assume some of the demand for the metal is coming from such sources, then it is not speculative or looking to profit when the price goes up. This implies that it is a buy-and-hold strategy that takes potential supply (i.e. profit-taking) out of the market.
The bottom line is while the traditional factors driving gold higher do not all fit together the price action in the precious metal suggests that there is more to it.
The old adage that markets can remain irrational longer than you can remain solvent. bears repeating as gold trades in unchartered waters. So, rather than trying to piece this puzzle together, just look at your charts and trade accordingly.
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