Gold is a hybrid, part commodity, and part financial asset. The precious yellow metal has industrial applications but has been a means of exchange for thousands of years.
London is the hub of the international gold market. In 1999, the United Kingdom sold one-half of its reserves by an auction as the government believed gold had become a barbarous relic of the past. The auction pushed gold futures prices to a $252.50 per ounce low, where the “relic” found a significant bottom and embarked on a rally that continues nearly a quarter of a century later.
Worldwide governments ignored the U.K., and over the past years, governments have been significant gold buyers, adding to their national strategic reserves. The International Monetary Fund classifies gold as a “foreign currency reserve,” validating gold’s role in the worldwide financial system.
At the end of November 2023, gold prices were almost eight times higher than the 1999 low. The trend remains bullish, and higher all-time highs could be on the horizon in 2024.
Sitting over the $2,000 per ounce level
After falling to a low of $1,823.50 per ounce on October 6, the outbreak of war in Israel after the October 7 terrorist attack caused COMEX December gold futures to gap higher on Monday, October 9.
The daily chart shows that gold put in a bullish key reversal pattern on October 6. The October 7 attack caused gold to take off on the upside.
The monthly chart shows gold followed the daily bullish key reversal pattern with a monthly reversal as the price fell to a lower low than in September and closed October above the previous month’s high. Gold continued to rally in November, closing the month near the $2,040 per ounce level.
Gold held up as interest rates soared
Short-term U.S. interest rates rose from zero percent in March 2022 to 5.375%. Over the period, gold future’s continuous contract low was $1,613 per ounce in September 2022, where the precious metal found a bottom.
Meanwhile, long-term rates exploded higher in 2023.
The 30-year U.S. Treasury bond futures fell to 107-04 in October 2023, the lowest since 2007. Gold’s low as the bonds cascaded lower and rates soared was over $1,800 per ounce. The rising U.S. debt level, which stands at $33.8 trillion, and credit downgrades likely caused gold prices to remain strong in 2023.
Four factors supporting higher gold
Markets reflect the economic and geopolitical landscapes. At the $2,000 level at the end of November 2023, at least four factors support higher gold prices over the coming months:
- The trajectory of U.S. interest rate hikes has slowed, with the Fed’s pause over the past two FOMC meetings. Stable rates that could move lower support higher gold prices.
- Central banks have continued to purchase gold. According to the World Gold Council, gold purchases by global central banks reached a record for the first nine months of 2023. Central banks own gold as a critical asset classified as a foreign currency reserve. The purchases continue to validate gold’s crucial role as a reserve asset.
- Gold’s bull market began at the 1999 $252.50 low and has made higher lows and higher highs for nearly a quarter of a century, continuing in 2023. Since late 1999, every selloff has been a buying opportunity, with gold less than $100 below the all-time high in late 2023.
- The potential for a BRICS currency with gold backing would only increase gold’s role in the worldwide financial system.
Economic and geopolitical uncertainty continues to support higher gold prices.
Levels to watch in the gold market
As we head into the final weeks of 2023, gold is just a short distance from its record high.
The weekly chart shows continuous gold future’s support and resistance levels at $1,809.40, the October 2023 low, and $2,085.40, the May 2023 high. At the $2,040 level on November 30, gold’s short-term trend is higher, and the price is closer to the high than the low.
The precious metal could surprise or shock on the upside
As we move into the holiday season and toward 2024, the bull market in gold remains firmly intact. Gold’s most recent significant rally took it 29.3% higher from $1,613 in September 2022 to $2,085.40 in May 2023.
The monthly chart shows the bullish key reversal pattern in November 2022 that propelled gold to the most recent high. After trading to a $1,809.40 low in October 2023, another 29.3% rally would take gold to the $2,340 per ounce level over the coming months. Meanwhile, the upcoming 2024 U.S. election, global economic uncertainty, and wars in Ukraine and the Middle East could cause gold to surprise on the upside. The move from the March 2020 low to the August 2020 high took the metal 42.2% higher. A similar move from the October 2023 low would put the price at over $2,570 per ounce.
I expect new record highs in gold over the coming months. While recent new peaks were marginal, the next move that eclipses previous highs could take gold higher than most market participants expect.