Gold has weakened as global tensions remain contained, but threats are ahead.
Gold – Daily Chart
Gold prices have slipped from a triangle formation and are at a crossroads where support can be found or further losses begin. The $2,000 level is the critical level for gold to find buyers. Below that level, it will be $1,960.
The tensions between Israel and Hamas eased somewhat, with the former having to defend itself in international courts for its attacks. That has led to calls for a ceasefire and could slow any further conflict.
The other issue is in the broader Middle East, with UK ships joining the US to fight attacks against oil tankers and other trading ships. Despite threats from Iran, there has been no sign of a wider conflict in the region. China has also seen better relations with the United States, but the recent Taiwanese election results soured them.
But the more significant problem is probably between Russia and Ukraine, where the conflict has gone flat, and Ukraine has lost many troops. Talk of further drafting and a broader influx of European troops risks escalating the situation this year.
Central banks seem intent on holding interest rates longer than investors first hoped, another headwind with elevated inflation and high rates, which could create a stagflation environment.
Chinese gold demand continued to improve in 2023 even as the price in the yuan soared. Gold added 17% in yuan terms during 2023 and was China’s second best-performing asset class. Only global stocks outperformed gold, which is a likely sign of continued demand as stocks run out of positive drivers.
Gold withdrawals from the Shanghai Gold Exchange (SGE) were 1,687 tons in 2023, up 7% on the year, while wholesale demand was 3% above the 5-year average. Continued global problems, rising government debt, and weaker economies will fuel the demand.
“Gold’s attractiveness was further boosted by the increasing need of households to preserve value: the local gold price’s outstanding performance drew their attention when the currency of other major assets weakened,” the World Gold Council said.
