What Took Gold So Long To Break Through $2,000?

There are just a few points separating gold stock prices this week from their all-time settlement high, but the move above $2,000-an-ounce was a long time in the making, so the move above the key mark had been anticipated for some time.

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There are a few things surprising about the gold market, according to George Milling-Stanley, chief gold strategist at State Street Global Advisors. He told Trade Algo that gold has spent a long time "trying to establish itself above the $2,000 level." The price of gold is higher than that on an intraday basis in 2020 other than last year, and for the past year, the macroeconomic and geopolitical circumstances have been overwhelmingly favorable for gold prices.

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The Federal Reserve has failed to bring down inflation since it began in the late 1970's, and with inflation at its 40-year high and steadfastly refusing to drop, a global recession likely around the corner, and a potentially nuclear conflict in Europe, it's imperative that gold respond to these events appropriately, according to Milling-Stanley.

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There was a settlement Tuesday between the most active June gold futures contract and $2,038.20 per ounce, which is the highest price since March of 2022 for this commodity. According to Dow Jones Market Data, prices traded at $2,038.40 on Wednesday trading, just below the record high settlement of $2,069.40 from Aug. 6, 2020 and the all-time intraday high of $2,089.20 from Aug. 7, 2020, which also set a record high for the day.

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Specifically, Joy Yang, who is the global head of index product management at MarketVector Indexes, said that the surge in gold prices in 2023 was not surprising due to the increase in geopolitical tension. "This was always going to give rise to gold price volatility during this year.".

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Overall, she told Trade Algo, the markets are suffering from an uncertain environment, inflation is back on top, and there is divergence in markets regarding an interest rate hike by the Fed, however gold is a good hedge against either negative or positive developments."

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Despite the fact that the crisis in the banking sector has passed, people are still looking at credit risk, which means "economic fragility" is likely to persist, Yang added, and gold is a safe haven in this time of economic turmoil.

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In the meantime, the oil supply shock as well as weak U.S. economic data this week have contributed to weakening the U.S. dollar so far this week, which is good news for gold investors. The ICE U.S. Dollar index has fallen by 0.7% to date this week, as well.

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A strong demand for gold, coupled with a limited supply, is driving up the price of the metal, according to Yang, which is good for the market.

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She told me that gold demand has reached a record high among central banks in 2022, a year when The World Gold Council reported that they reached a record high in gold demand for the financial sector.

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With the uncertain economic climate, Yang said that people have looked for safe-haven assets like gold, along with other assets such as silver, dollar bills, and a variety of other assets. Artificial intelligence is also making headlines, so demand for gold in the industrial sector is "high," she said.

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A positive outlook is expected for gold prices at this point, she said, as long as the Fed takes steps to reduce inflation without weakening the economy, the global economy is weak while the American economy is strong, as well as a strengthening of the U.S. dollar. Some scenarios could potentially "divert gold optimism," including a Fed that takes action to address inflation without weakening the economy.

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Throughout the first half of 2018, gold futures trade at an average of 11% higher than they were starting the year, and they reached highs above $2,000 for the first time in about 11 months in March.

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There is no doubt at this point that gold could surpass its previous all-time high intraday during the course of the current rally. Milling-Stanley stated that gold is entitled to be above $2,000 under the current circumstances, and it is quite likely that gold could surpass its previous all-time high intraday during this uptrend.

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Despite the fact that gold might have overcome the perceived barrier at the $2,000 level, it is still "too early to say with confidence that the gold market is over the perceived barrier", he said.

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It will be the persistence of uncertainty that has the greatest effect on how the immediate outcome will turn out, Milling-Stanley said, particularly regarding inflation, the possibility of a recession, and how the banking crisis develops, as the main determinants of the immediate outcome.