Gold May Have Found The Bottom Near $1900

Key Insights

• Gold rebounded from June lows despite rising Treasury yields. 
• Demand for safe-haven assets declined in recent months, but the underlying demand for gold remained strong. 
• Gold will gain additional upside momentum when it moves above the psychologically important $2000 level. 

Gold touched yearly highs back in early May but lost momentum and moved lower despite the recent pullback of the American currency.

Rising Treasury yields have put some pressure on gold markets, although it looks that the key driver for gold’s pullback was the reduction of demand for safe-haven assets.

Since May, SP500 rallied from 4175 to 4575, while NASDAQ moved from 13,300 to the recent highs near 15,900. Investment demand for gold decreased as traders had plenty of options to put their money to work.

It’s hard to say that recession risks have evaporated. While the U.S. economy (and the world economy in general) is performing better than previously expected, recession risks remain. The current problems of the Chinese economy highlight these risks for the world economy. Nevertheless, traders stay bullish and buy riskier assets.

At this point, rising Treasury yields and the stock market rally serve as negative catalysts for gold markets. However, gold managed to move from $1893 to the recent highs at $1987 despite these catalysts, which indicates that the underlying demand for gold remains strong.

It looks that central bank demand is the key source of the underlying demand for gold. Central banks diversify their holdings amid rising geopolitical tensions. Gold will have a chance to settle above the $2000 level when demand from the investment community grows.

As the general trend in the gold market remains bullish, the price of gold needs a little push to get above the psychologically important $2000 level. When it happens, the FOMO trade could quickly push gold towards all-time highs.

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