Since the last US interest rate decision on December 18, 2024, gold has seen a remarkable recovery, climbing from a low of USD 2,585 to a recent high of USD 2,697 in just three weeks, marking an approximate 4% increase.
However, this recovery has led to significant resistance at the upper boundary of a triangle formation. This downward trendline is currently positioned around the USD 2,679 level, serving as short-term resistance, which triggered a pullback at the start of this week.
According to the latest numbers released today, gold has broken past this technical barrier, rallying back up towards USD 2,696. Nevertheless, this breakout isn’t yet confirmed, as gold retested the former resistance for support. However, the outlook appears favorable!
Chinese Central Bank Resumes Gold Purchases
Regardless of short-term price fluctuations, the People’s Bank of China (PBOC) resumed its gold purchases in November 2024 after a six-month pause, acquiring a total of 15 tons in November and December. These strategic purchases have increased China’s official gold reserves to around 2,280 tons, still significantly lower than the United States’ 8,133.5 tons.
This move reflects a concerted effort to diversify currency reserves, lessen dependence on the US dollar, and hedge against geopolitical tensions and economic uncertainties. Despite gold’s current high prices, the PBOC continues its long-term strategy to enhance gold’s share in its total reserves.
Market Implications and Strategic Context
Since early 2023, China’s foreign exchange reserves have grown by roughly USD 830 billion, with around 80% of this increase driven by rising gold values. We can expect that central bank demand, especially from China, will continue to support gold prices.
Even amidst potential stock market downturns, the support level around USD 2,500 suggests that significant price declines are likely only in extreme deflationary or liquidity shock situations. The PBOC’s ongoing gold acquisitions indicate strong confidence in gold as a strategic asset, emphasizing a commitment to building reserves irrespective of current market prices and maintaining financial stability.
Gold’s Incredible Resilience
Despite a strong market, gold has shown remarkable resilience, bouncing back from the lows of December due to various factors, including stabilization following the US elections, ongoing supply constraints, and shifting central bank policies.
The Federal Reserve’s interest rate cuts and projections for 2025 have influenced gold’s appeal, while ongoing geopolitical tensions and economic uncertainties bolster its status as a safe-haven asset. Investors should remain alert as the market approaches this critical resistance level. The coming days will be crucial in determining if gold can maintain its recovery or if it is on the verge of a consolidation phase.
Gold in US-Dollar, Weekly Chart
Gold in US-Dollar, weekly chart as of January 15, 2025. Source: Tradingview
Technically, gold continues to consolidate its strong gains from 2024. Following the all-time high of USD 2,790 in late October, gold has predominantly moved sideways within a range of USD 2,600 to USD 2,700. Over time, a triangle formation has emerged, typically indicating a period of consolidation and accumulation. As the trading range narrows, a breakout is imminent. Given the full context of gold’s advance along with favorable seasonal trends, we believe the breakout will likely be to the upside; however, it may still take several weeks for the market to fully prepare for this move.
On the weekly chart, the stochastic oscillator has reversed, indicating that a new upward movement may already be starting. Although the oscillator did not enter oversold territory during the recent pullback, it reached its lowest reading of 2024 just a few weeks ago. In bullish markets, weekly stochastic oscillators frequently do not hit extreme oversold levels due to the underlying strength and momentum of the uptrend.
Overall, the weekly chart presents a cautiously optimistic outlook. The new buy signal from the stochastic alongside the triangle formation indicates the potential for continued upward movement in the near future. If gold successfully surpasses the resistance zone between USD 2,700 and USD 2,727, it may quickly approach the all-time high of USD 2,790.
Gold in US-Dollar, Daily Chart
Gold in US-Dollar, daily chart as of January 15, 2025. Source: Tradingview
On the daily chart, gold has reached its upper Bollinger band (USD 2,696) while remaining comfortably above its 50-day moving average (USD 2,644). It is evident that gold is attempting to break out from its triangle formation that has constrained prices for the past two and a half months.
However, it is still uncertain whether gold can navigate this critical point directly. A further attempt towards USD 2,700 could confirm a successful breakout. Conversely, a pullback towards the 50-day moving average would suggest another consolidation phase within the triangle pattern. A retreat towards the USD 2,620 range would also be acceptable, but a daily close below USD 2,600 would raise concerns.
Overall, gold appears to be gaining strength and seems poised to break out of the triangle. Whether this occurs immediately or after another consolidation period, we expect gold to trade higher by February, potentially challenging its all-time high of USD 2,790 in the next month or two.
Conclusion: Gaining Momentum for a Breakout
Gold’s recent performance and technical analysis present a cautiously optimistic scenario for the precious metal at the start of 2025. The metal has exhibited impressive resilience, recovering from its December 2024 lows to test significant resistance levels. The triangle formation, combined with a new buy signal from the weekly stochastic oscillator, suggests a possible continuation of upward movement. This technical configuration, along with seasonal support, indicates that gold might be ready for an upside breakout, potentially targeting its all-time high of USD 2,790 in the upcoming months.
The PBOC’s renewed gold purchases in late 2024 further bolster the bullish case for gold. This strategic move aims to diversify currency reserves and diminish dependence on the US dollar, highlighting persistent demand from central banks. China’s consistent gold acquisitions, irrespective of market prices, underscore a long-term commitment to gold as a strategic asset. This sustained demand is likely to provide fundamental support for gold prices, with the USD 2,500 level serving as a potential safety net in times of market instability.
Gold Chartbook – Gaining Momentum for a Breakout
As we advance into January and February 2025, investors should pay close attention to gold’s interactions with critical technical levels, especially the resistance zone between USD 2,700 and USD 2,727. A successful breach of this area could lead swiftly to a test of the all-time high.
Nevertheless, the market might require further consolidation before executing a decisive move. Factors such as the Federal Reserve’s policy decisions, geopolitical tensions, and economic uncertainties will continue to influence gold’s path. While the overall outlook appears promising, investors should remain alert and prepared for possible volatility as the market navigates this pivotal point in gold’s price evolution.
