Melt Up in Gold

Posted by Adam Turnquist, CMT, VP Chief Technical Strategist

Wednesday, November 22, 2023

Key Takeaways:

  • Gold is starting to shine again after confirming support off its rising 200-day moving average last week. A meaningful pullback in interest rates and the dollar underpinned the recovery in the yellow metal.
  • Momentum indicators point to a bullish trend change, while speculator long positions in gold continue to outpace shorts.
  • Central bank demand for gold is building, evidenced by record buying during the first nine months of the year.
  • Seasonal tailwinds return next month as gold enters its best two-month seasonal period.
  • However, resistance near $2,070 has been problematic for gold over the last several years, so while a retest of this level may be in the cards, a confirmed breakout will be required to keep gold’s upside momentum moving forward.

Gold has regained its luster this month as the narrative surrounding monetary policy changed from tightening to potential rate cuts coming as early as next spring. Interest rates—including real yields— and the dollar all pulled back meaningfully. Ongoing geopolitical tensions in the Middle East have also supported a risk premium in the yellow metal.

As shown in the chart below, gold found support last week off its rising 200-day moving average (dma) at $1,939. Technically, a close above the October highs at $2,009 should pave the way for a retest of the prior highs near $2,070—a major resistance hurdle for the yellow metal to clear.

Momentum indicators are confirming the bullish price action. As shown in the middle panel, the positive directional movement indicator (+DMI) recently crossed back above the negative directional movement indicator (-DMI), signaling a change in trend direction. Managed money net futures positions (typically hedge funds), shown in the bottom panel, are also back in positive territory after briefly turning negative last month, implying long positions among speculators are outpacing short positions. Furthermore, while positioning remains bullish, it has not reached extremes or levels we consider contrarian.

View enlarged chart

Gold Demand is Growing

Hedge funds are not the only ones buying gold. According to the World Gold Council, gold demand in the third quarter was 8% above its five-year average, with central banks buying 337 tons (representing nearly 30% of total demand during the quarter). For the year, central banks have now purchased a net 800 tons of gold, marking the highest on record for a nine-month period. The World Gold Council further noted buying has been broad-based, stating, “While there is a nucleus of committed regular buyers, the range of countries whose central banks have added to their reserves over recent quarters is broad-based.”

View enlarged chart

Seasonal Tailwinds Return

Gold is coming into a seasonally strong period. Over the past 50 years, gold has gained an average of 1.4% and 1.9% in December and January, respectively, making it the precious metal’s best two-month period over this timeframe.

View enlarged chart


The macro backdrop for gold has improved. Real yields and the dollar have recently pulled back through key support levels as the market looks ahead to a potential shift in monetary policy next year. The anticipation of rate cuts, along with elevated recession odds, ongoing geological tensions, and increased central bank buying in gold should continue to support price action. Seasonal tailwinds also return next month as gold enters its best two-month seasonal stretch. However, resistance near $2,070 has been problematic for gold over the last several years, so while a retest of this level may be in the cards, a confirmed breakout will be required to keep gold’s upside momentum moving forward.  


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