What takes gold into $2k ??

٢٠ يناير ٢٠٢٣

With the weakness in the USD - where the DXY holds the potential to crack the consolidation lows and EURUSD looks to break the 1.0875 and 1.0750 range - married with the grind lower in US real rates (lower pane) - we’re seeing new cycle highs in gold.

A range break in the DXY would certainly be helpful in the quest to push price to $2000, which is the big target for the bulls ahead of the ATH of $2075 – given where XAU 1-week implied vols sit the market prices with about a 5% chance of a move to the big number this coming week, so one for another time and perhaps post FOMC meeting (1 Feb).

Slower US growth is gold’s friend here and a hedge against a recession means long USTs, and gold appreciation.

Are we sufficiently overbought?

We're certainly heading that way but I'd argue the elastic band hasn’t been sufficiently pulled just yet. Here we see price now 6.7% premium to the 50-day MA which is lofty as you can see below, but we can get a far higher probability of mean reversion when price holds a 10% premium to the average.

So watching USD flows in what will be a quiet week of data next week - also real rates for a move into the 2 Dec low of 1.10% - should we see both scenarios' play out then gold could push to 2k - but the risk of a pullback within the bullish trend and prior to price hitting 2k is clearly rising, although we expect drawdowns to be contained