The price of gold has been in a corrective phase after a huge surge that began in November 2022. In January and February of 2023, gold reached a high of $1,950 per ounce, but then began a necessary correction.
In the previous analysis, it was mentioned that the price of gold was moving towards the 23.60% Fibonacci support level at $1,850 per ounce. Although this level was considered weak at first, it has remained strong over the past week after several tests. At the time of recording, the price of gold has been trading around this level for over a week, suggesting that the support is stronger than originally thought.
Why Investing in Gold is a Smart Move for Investors: A Comprehensive Analysis
say you have an investor who is looking for a safe haven asset to protect their portfolio from market volatility and uncertainty. While fixed income assets like treasuries and corporate bonds may provide a guaranteed yield, they are still subject to market risks such as interest rate fluctuations and credit risk. On the other hand, gold is considered a non-correlated asset that can provide diversification benefits to an investor’s portfolio.
Furthermore, gold has a historical track record of retaining its value over time, even during periods of economic turmoil and inflation. In times of crisis, investors tend to flock towards safe haven assets like gold, which can drive up demand and ultimately the price. Now, let’s look at the current market conditions that are pushing the price of gold higher.
- Firstly, interest rates are expected to remain low for the foreseeable future. This is due to the Federal Reserve’s commitment to keeping rates low until inflation reaches its target level of 2%. Low interest rates make alternative investments like gold more attractive since they offer a hedge against inflation and currency depreciation.
- Secondly, the US dollar is expected to continue weakening. This is due to the Federal Reserve’s monetary policy of increasing the money supply through bond purchases, which puts downward pressure on the dollar. A weaker dollar makes gold more affordable for foreign buyers, which can increase demand and drive up the price.
- Finally, inflation is trending lower and is expected to continue on a downward trajectory. While some may argue that higher inflation should drive up the price of gold, the reality is that lower inflation reduces the opportunity cost of holding gold. This is because the opportunity cost of holding gold is the potential return from investing in interest-bearing assets, which becomes less attractive as interest rates decline.
At this point, gold is in a crucial situation.
The next two weeks will be crucial in determining the direction of gold prices for the rest of 2023. If the price of gold remains above this support level, we may see a bullish continuation in the near future. On the other hand, if the price of gold falls below this support level, it could signal a further downward correction. As inflation remains a concern in many countries, investors may seek refuge in assets such as gold, which could boost the price of the precious metal.
In the world of finance, gold has been known as the “king of assets.” This precious metal has maintained its status despite market ups and downs, and has maintained its value over the years. Currently, gold has seen a resurgence during the beginning of the year, making it an attractive asset for investors.
Regarding corporate assets, Apple has regained its status above the two trillion-dollar mark, making it one of the most valuable companies in the world. Saudi Aramco follows in third place, just below the two trillion-dollar mark. Microsoft, on the other hand, remains in fourth place, while silver has risen to fifth place.
These four assets (gold, Apple, Saudi Aramco, and Microsoft) can tell us about the current market situation in one image. Of course, gold has been registering an excellent surge this year, while treasuries have been falling, albeit not abruptly. 10-year treasuries fell 10 basis points even though the Federal Reserve raised its rate again.
Some may wonder why treasuries fall if the Federal Reserve raises rates. This has to do with market expectations that may expect the Federal Reserve to soon stop its bullish climb.
On the other hand, American stocks are also in positive territory this year, and the dollar index is falling with a fairly strong correction. The reaction of gold investors was positive, obviously, which caused it to rise by about $25. Treasuries, on the other hand, fell after the Federal Reserve meeting, and stocks rose, indicating that the market is entering risk. The dollar also weakened slightly due to sentiment or expectations regarding the Federal Reserve’s monetary policy.
Looking at what has happened in the last two months, in particular, since November, treasuries have been correcting, as has the dollar. Gold, on the other hand, has been rising since October, and stocks have been rebounding since December. What is happening in the current market is positive, given that the Federal Reserve is expected to end its bullish cycle. The first meeting of the Federal Reserve’s Open Market Committee was recently held, and it once again raised its range of federal funds rates by 25 basis points, in line with the reduction in the aggressiveness of its increases. Inflation data for the last three months also supports this decision.