Wednesday, 12 June 2024

Gold is Approaching its Strongest Buy Signal in Four Months

As the U.S. dollar begins to retrace its gains after reaching its highest level since early January, gold is approaching its strongest buy signal in four months. By the end of the previous week, gold’s 14-day relative strength index (RSI) indicated that it may be time to think about purchasing in anticipation of mean reversion. Gold had not been this oversold since October 2022.

The best moment to stockpile gold maybe when the currency is high. On the other hand, it might be wise to take some profits when the dollar starts to cool.

Gold in Four Months

Under pressure from the dollar, which has appreciated against a basket of international currencies as a result of economic data that virtually guarantees further rate hikes, gold is currently roughly 6% below its 2023 high of just under $1,960 per ounce. With unemployment at 3.4%—the lowest level in more than 50 years—the Federal Reserve is free to keep up its war against inflation.

The consumer price index (CPI) report from last week demonstrated that inflation is still rising faster than anticipated. Between December and January, consumer prices increased by 0.5%, compared to an increase of 0.1% from November to December.

  • Gold is currently roughly 6% below its 2023 high of just under $1,960 per ounce.
  • Consumer prices increased by 0.5%, compared to an increase of 0.1% from Nov to Dec.
  • Turkey was the largest official purchaser, followed by China and then Egypt.
  • China and India are the two biggest buyers of gold in the world.

Utility gas services, eggs, breakfast sausage and ham, instant coffee, and—just in time for tax season—tax return preparation services were some of the goods and services that had the biggest price increases in January.

According to Goldman Sachs analysts, as central banks throughout the world look to diversify away from the U.S. dollar, they are on course to add an unprecedented quantity of gold by the end of 2023. That’s especially true now that Russia is under U.S.-led sanctions for its invasion of Ukraine.

According to the World Gold Council, central banks bought a record 1,136 tonnes of gold in 2022, which is 40 million ounces (WGC). With over 147 tonnes, Turkey was the largest official purchaser, followed by China with 62 tonnes and Egypt with more than 44 tonnes.

Yet, according to Goldman, banks may surpass that sum this year, with imports possibly topping 1,200 tonnes. The price of the precious metal may average $1,950 per ounce in 2023 if the economies of China and India, the world’s two biggest buyers of gold, continue to improve.

The average price of gold has increased year over year in 19 of the last 23 years, which is almost 82% of the time. It would be the eighth year in a row that the metal’s average price has increased if it averaged $1,950 this year.

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