Can Gold Investors Hope for A Rally?

The gold market got a chance to recover slightly in the middle of August. Up to now, XAU/USD has been showing mixed moves, however, we can see that the downward trend is ended.

Usually, the strengthening of gold is caused by the weakness of the USD or geopolitical events that increase the market’s risk level. Looking forward, we know that the Federal Reserve is anticipated to raise interest rate in September and there is a high chance for another rate hike in December this year. Rate hikes will support the USD and there is a chance it will be able to return to previous highs.

Therefore, we have a question: Will Gold Rise?

Usually, gold is considered by traders as a safe haven that rises in times of uncertainties. However, as we can see, the gold market was depreciating despite trade wars tensions, Brexit issues, Turkish lira’s fall, and geopolitical tensions. Investors preferred the US dollar, yen and treasuries over gold. What should traders expect from the gold market if its traditional rules are not valid anymore?

Analysts at the Commerzbank believe that the gold market has good chances to surge and it’s early to say that gold has lost its status as a safe haven. According to Commerzbank, the weakness of gold was caused by the strong USD, the strong US equity market, weak emerging market currencies, and speculative selling. However, the analysts see the end of the USD’s rise. If we remember the situation before the crisis of 2008, gold fell to $700 and the USD rose, however, later the gold price surged to $1,200 by December 2009 and $1,400 at the end of 2010.

According to the COT report, hedge funds and managers keep betting on weak gold despite its recent rise. However, Commerzbank’s analysts see this as a positive signal. As the large speculators hold net-short positions for a long time, the reversal moment should happen soon. The bank predicts that as soon as the market gets a fresh catalyst, traders will close positions and the price will go up.

As a result, the bank forecasts a gold’s rise to $1,300 by the end of the year and to $1,500 in 2019.

What about the short term trading?

In case the USD falls further down in the near future, gold will have a good chance to start its uptrend. However, the rise may be limited, 1,216.50 level is too strong. Only if the USD plunges, the XAU/USD pair will be able to break above it and move to the next resistance at 1,228.65. On the weekly chart, RSI has been moving near the 30 level. If it crosses the level upside down, it will be a signal that the pair is oversold and we can hope for the gold’s rise.

If the USD recovers, there are risks of the fall to 1,189.50.

Gold Weekly Chart
Gold Weekly Chart

Making a conclusion, we can say that in the near term the forecast for gold is mixed. The weakness of the USD may support gold prices. In the longer term, gold might appreciate. As soon as there is a strong driver for the market, the price will go up.

 This article was written by Daria Bobrova, a senior analyst at FBS