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Hedge Demand to Keep Gold Prices Underpinned says Crédit Agricole, WGC

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New institutional analysis finds the gold price is likely to be supported by ongoing hedge demand by investors, and a new medium-term technical analysis says a return to $1835 cannot be ruled out.

Analysts at French lender and investment bank Crédit Agricole say the retain a constructive stance on the precious metal's outlook.

"We maintain a bullish bias on gold," says a monthly research note from Crédit Agricole. "We expect the negative global rates and yields to keep gold in demand. Gold also remains an attractive hedge against risk aversion and stagflation. That said, we mark-to-market our near-term forecasts."

At the time of writing the spot gold price is at 1777 an ounce, having been as high as 1801 at the open of the gold trading market in Asia on Monday.

The World Gold Council's (WGC) most recent research report showed they anticipate the precious metal to remain relatively well supported in the near term.

"Gold will likely remain reactive to real rates, driven by the speed at which global central banks tighten monetary policy in an effort to control inflation," says the WGC's in a mid-year analysis.

The report says that although the Federal Reserve is likely to continue raising interest rates and create potential headwinds for gold, many of these hawkish policy "expectations are priced in".

"Concurrently, continued inflation and geopolitical risks will likely sustain demand for gold as a hedge," says the report.

"Underperformance of stocks and bonds in a potential stagflationary environment may also be positive for gold," it adds.

From a technical perspective, Bill McNamara, Director at The Technical Trader, says the gold chart is worth a closer look following its most recent price action.

"The weekly chart below shows that the price has been trending higher since it dropped back to a trading low of $1680 three weeks ago, at which point it tested – successfully – support in the form of lows that originally formed back in the first half of 2021," says McNamara.

Gold price risks

Image courtesy of The Technical Trader.

Over the last four weeks gold prices have rallied by 5.6%, and that’s its best performance since February/March, when they ran up to a high of $2052.41.

"Its most recent price action has hauled it up to a five-week high and it’s worth noting that it doesn’t look particularly overbought at this point (RSI=61%), which implies that there might still be scope for further near-term upside," says McNamara.

He says the next area of possible resistance is at $1835 or so, at which point it will have retraced approximately 38.2% of the sell-off that began in March.