GOLD A return to the spotlight soon?

Demand for gold declined in the third quarter, as the appetite for the precious metal among individuals, companies, and central banks failed to offset the disaffection of financial investors, who are less attracted to safe-haven assets. Global gold purchases were down 7% year-on-year to 831 tonnes, according to the World Gold Council's quarterly report released Thursday.

Currently, institutional investors' attention is focused on riskier assets such as equities, where U.S. stock indexes are trading at record highs.

Yet there is no shortage of questions about why gold has clearly underperformed in such an ideal macroeconomic environment. The correlation between inverted real interest rates and precious metals is strong and indicates that the sector is poised for a jump.

Back in the day, with CPI around 1%, very few investors anticipated inflation as a risk to the economy. Today, it is a real problem because we are now on a higher-than-expected peak (5.4%). The yellow metal probably appreciated too fast and too quickly as investors sought a hedge against the effects of Covid-19. The precious metal traditionally acts as a safe haven during times of crisis.

This extreme sentiment probably explains the reason for its recent weakness after it signalled much earlier than any other asset the possibility of a coming inflationary environment. Another reason gaining traction could be the rise of cryptocurrencies siphoning off demand from gold.

Overall gold looks fundamentally cheap as inflation continues to gain ground. We believe that the historical relationship between precious metals and rising consumer prices will continue to be strong.

From a technical perspective, the price of gold attempted to break above the resistance located around $1,785 / $1,795 coupled with the 200-period moving average. Moreover, prices were also moving within a bearish channel (purple), so the break of the upper bound is a signal of a potential bullish recovery.

In the event of a bull trap, the support levels for a return to buying are identified and known. The technical targets are at $1,750 and $1,725.

Nevertheless, in the short term, the market is regaining height in a bullish channel and the support zone is defended by buyers. A new leg up could take place on the price of gold to hope to rally to $1,830 and $1,850 dollars. A target of around $1,960 is also possible if gold were to really catch up.

(Chart Source: Tradingview 28.10.2021)

To sum up, the price of gold is gradually confirming bullish signals and the economic environment could bring the asset back to the forefront so that it can catch up in the coming months.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.