Gold price continued its strong bull run, briefly retesting the key psychological level of $5,000 for the first time ever. It has already jumped by 15% this year, beating the Dow Jones Industrial Average and the Nasdaq 100. Still, there are signs the ongoing rally may pull back briefly soon.
Gold Price Has Soared as Demand Rises
The ongoing gold price rally is driven by elevated demand and constrained supply amid geopolitical risks.
Data shows that many central banks have continued to accumulate gold over the past few years, with some of them dumping their US Treasury holdings. China holds US government bonds worth over $600 billion, down from $1.2 trillion a few months ago.
There is a risk that some European countries will follow suit as relations with the Trump administration remain tense. Also, many European countries are concerned about the US public debt of $38 trillion.
There is a likelihood that geopolitical issues will persist in the near term, especially as American warships move to the Middle East. Some analysts believe that Trump will ultimately attack Iran, especially after his success in Venezuela.
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Retail and institutional investors have continued buying gold over the past few months due to the Fear of Missing Out (FOMO). For example, the popular SPDR Gold Shares ETF (GLD) now holds over 34 million ounces of gold, valued at over $172 billion. Tether holds billions of dollars in gold.
Gold price is also rising as Donald Trump considers the next Federal Reserve Chair. Data from Polymarket shows that most traders expect either Kevin Warsh or Rick Rieder to become the next Chair.
Trump claims that the next Fed Chair will cut interest rates aggressively, potentially to 1%, despite the fact that the American economy is doing well. It expanded by 4.4% in the third quarter, while inflation has been contained.
Meanwhile, Wall Street analysts remain highly bullish on gold, with Goldman Sachs predicting it will continue to rise in the coming months. Goldman Sachs predicts that it will jump to $5,400, while JPMorgan sees it hitting $5,000.
Other top banks, including Bank of America (BoFA), Jefferies, and UBS, have raised their targets to $6,000, $6,600, and $5,400, respectively.
Gold Technical Analysis as it Gets Overbought
The weekly timeframe chart shows that the gold price has been in a strong bull run for years, making it one of the best-performing assets globally.
Gold has constantly remained above all moving averages, while the Average Directional Index (ADX) has jumped to 64, a sign that the strength is continuing.
The risk, however, is that gold remains well above the 50-week and 100-week Exponential Moving Averages (EMAs), while the Relative Strength Index (RSI) and the MACD have moved into overbought territory.
Therefore, there is a risk of a short-term pullback as investors book profits after it moved to the key target of $5,000. Also, it remains well above the moving averages, suggesting it may revert to the mean in the near term.
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