(Kitco News) - Gold prices have managed to hold initial support above $2,500 and continue to consolidate near their recent record highs. Although momentum has slowed, one analyst said this rally is far from over.
In a recent note to Kitco News, Callum Thomas, Founder of Topdown Charts, said that gold’s breakout rally this year, after years of consolidation, is a significant development. Gold prices are up more than 22% this year; December gold futures last traded at $2,543.80 an ounce.
“We're very clearly now in a new uptrend, and the forces in motion that are driving it are unlikely to go away any time soon,” he said.
He explained that geopolitical uncertainty, rising government debt, recession risks, and impending rate cuts will continue to support gold prices.
Throughout the summer, gold has benefited from falling bond yields and a weakening dollar. Last month, the U.S. dollar index fell to a one-year low as it tested support at 100 points. Thomas noted that the selloff pushed the U.S. dollar index below a critical trendline.
Although the U.S. dollar has bounced off its recent lows, Thomas said that overall weakness in the currency will continue to support gold prices.
“While dollar resilience and higher real yields didn't stop gold's rise, I think a weaker dollar and lower yields will serve as tailwinds—particularly in that they reflect some of the key undercurrents that have supported the move higher in gold prices,” he said.
Finally, some analysts have raised concerns about gold’s speculative positioning, as bullish bets remain at their highest level in four years. There is a risk that these speculators could liquidate their long positions, driving the price lower.
Although speculative positioning is elevated, Thomas said that interest in gold is still relatively low. He noted that retail investors still haven’t jumped into the gold market, as evidenced by ETF demand.
Thomas added that it might be only a matter of time before generalist investors once again start to pay attention to the precious metal.
“Arguably, offshore buyers (e.g., central banks) have been more important, but as some of the other themes and trades in markets start to get tired (e.g., AI hype), people may start to look at areas of relative strength and emerging upside and consider rotation... whether to gold or the numerous other parts of the market that are primed for rotation,” he said. “So don't count out the rotation theme just yet—what we saw in July on that front (e.g., big tech to small caps) is probably just the beginning, and it will likely play out in ways and magnitudes that people aren't ready to think about yet.”
