Gold is preparing to test multi-year highs

The price of an ounce of gold is close to multi-year highs of around $1,360. Growing geopolitical tensions and a slowdown in the growth of the global economy create fundamental reasons for the rise in price of precious metals, which investors traditionally use as a defensive asset.

During the session on February 20, the ounce price of gold reached 1346, which is only slightly less than the resistance zone 1360-1370. Despite the rollback, the precious metals have a good chance of breaking through the resistance, which remains valid for 5 years.

In favor of gold, a number of very important macroeconomic and geopolitical factors play:

  • Investments in gold are traditionally reduced during a period of monetary tightening. During the growth of interest rates, bond market and the stock market create more attractive opportunities. Recent comments by Fed members indicate that the FOMC does not rush to raise rates this year.
  • The Chinese economy has been growing at the slowest pace since the 1990s.
  • The eurozone economy is slowing rapidly. Italy has officially entered into a recession after 2 quarters of falling GDP. Against the background of a populist government policy, this may again plunge the country into a debt crisis.
  • The Bank of England expects GDP growth to be the lowest in 2019 after the 2009 recession.
  • Changing hawkish rhetoric to neutral creates conditions for a change in the trend towards a stronger dollar, which is a positive factor for the market.

In the US, the situation looks better than others, but the global nature of the American economy should be taken into account. This year, analysts expect corporate earnings to show near-zero growth. Globally, this is a positive factor for gold.

Technically, the picture in gold price remains attractive. A bullish cross formed on the chart (this is when the 50-day moving average crosses above the 200-day moving average and is a very widely followed technical bullish signal).

The main goal of the bulls is a zone 1360-1370. If buyers manage to break through resistance and successfully test the level, a long-term growth cycle of the precious metal can wait for us. Key growth targets are the highs of 2011 – $1800-1900.