(Kitco News) - The gold market continues to see solid selling pressure after hitting fresh all-time highs at the start of the week. However, one market analyst notes that gold has a fairly long way to fall before its uptrend, supported by geopolitical uncertainty, is threatened.
Kelvin Wong, Senior Market Analyst at OANDA, said the $2,590-an-ounce level is acting as key medium-term pivotal support for the yellow metal.
“Failure to hold at US$2,590 negates the bullish tone for a multi-week correction sequence to unfold within its major uptrend phase to expose the next medium-term supports at US$2,484 and US$2,360,” he said in a note published Tuesday.
However, Wong is not expecting gold to see a major correction anytime soon, as the market has managed to attract significant upside momentum.
He noted that gold prices have traded solidly above their 20-day and 50-day moving averages, with momentum indicators also trending higher.
“These observations suggest that medium-term upside momentum remains intact for gold,” he said.
Wong said his next major resistance level would be around $2,850 an ounce.
Along with gold’s technical momentum, Wong noted that gold continues to see solid fundamental support as a safe-haven asset. He explained that gold’s latest push to fresh all-time highs appears to be part of a new ‘Trump trade,’ as the Republican candidate and former President Donald Trump has seen markets start to price in his potential victory in November’s election.
“Given that Trump's ‘generous’ corporate tax cuts proposal to reduce the tax rate to 15% from 21% will likely widen the U.S. federal deficit further, in turn leading the market to question the credit standing of the U.S. government (such as the prospect of more frequent government shutdowns) that may see an erosion of confidence in U.S. Treasuries and strengthened gold,” he said in the note.
At the same time, Wong noted that the price action in gold is responding to more than just uncertainty surrounding the U.S. election.
Heightened geopolitical uncertainty and fears of an economic slowdown as inflation remains elevated make gold an attractive tail-risk hedge, Wong said.
“Higher inflationary pressure and an increase in geopolitical risk premium are deadly concoctions that may lead to stagflation, which in turn can spark a potential risk-off episode in the global financial markets,” he said. “In the lens of technical analysis, the ratio chart of S&P 500 over gold together with its monthly RSI momentum indicator of the S&P 500/gold ratio has displayed a significant underperformance of S&P 500 against gold since February 2024. Therefore, the recent heightened demand for gold is likely reinforced by portfolio tail-risk hedging activities as well.”
