- Gold surpassed a historically tough resistance level at $1,550 in a 5% rally within 2 weeks.
- Rising geopolitical risks, poor performance of housing markets, and retest of a key area have investors optimistic.
- Next major macro resistance levels are found at $1,800 and $1,900.
Gold has risen to the yearly high of 2019, testing a key resistance level for the first time in four months. Due to intensifying geopolitical risks, declining housing market sales, and the retest of key levels, investors anticipate a strong year ahead for the safe-haven asset.
Since December 23, the price of gold has increased by over 5% from $1,477 to a historically important level at $1,550., within a 2-week period. For an asset like gold that tends to see a low level of volatility throughout extended periods, such a steep recovery is unprecedented.
Factor #1: Big geopolitical risks = spiking demand for gold
According to Peter Schiff, a prominent gold investor and CEO at Euro Pacific Capital, geopolitical risks remained the biggest factor for gold’s abrupt rise over the past week.
Following the assassination of the Iranian general Qassem Suleimani by the U.S., oil price spiked as financial markets trembled, triggering the gold price to increase.
Heightened geopolitical risk has resulted in both gold and Bitcoin moving higher, but for different reasons. Gold is being bought by investors as a safe haven. Bitcoin is being bought by speculators betting that investors will buy it as a safe haven.
Prior to it, investors were uncertain whether there was a strong catalyst to push gold above $1,550, which the market rejected in September 2019. The gold market struggled to recover since.
Factor #2: Underforming U.S. real estate market
To a broader base of investors, gold and real estate are considered to be two major “real assets” or physical assets. Hence, when either one of the two underperforms, the other tends to see an increase in value.
Possibly because of the record high stock market and the rise in the inflow of money into stocks, the U.S. real estate market has not met the expectations of analysts in the final month of 2019.
As buyers continue to be put off by expensive supplies in the market, the U.S. real estate market is set for a weak year in 2020.
An underperforming housing market can serve as a medium-term catalyst for gold, specifically if it sustains its momentum amidst heightened geopolitical risks.
Factor #3: Surprising retest of $1,550
Although analysts anticipated the price of gold to react with a firm rally following the crisis in the Middle East, the magnitude of its upside movement has surprised investors.
The $1,550 level has served as a particularly heavy resistance level since 2013 and a clean break above it would position gold for a new rally in the first half of 2020.
To put into perspective, if the gold price cleanly surpasses $1,550 and it becomes a support level, the next resistance levels are found at $1,800 and $1,900.
Gold, depending on how the price reacts over the next several weeks, could be en route to testing 2011 levels as long as it is not met with a steep sell-off in January.