Gold continues to be a safe haven asset for investors worldwide. However, due to various factors, its price dropped from a peak of $5,589 per ounce to fluctuate around the $4,000 level in mid-July, with several occasions where it dipped as low as $3,900 per ounce.
Gold traders share a consensus that the renewed intense conflict in the Middle East, alongside the ongoing war between Russia and Ukraine, will severely impact global energy prices. When energy costs rise, many countries will struggle to control inflation since energy underpins all costs, from transportation to supply chains across industries.
When inflation becomes uncontrollable, central banks worldwide face tough decisions on whether to raise interest rates. If they do, capital tends to flow out of the gold market back into financial institutions.
Phaworn Nawawattanasup, CEO of YLG Bullion International, commented that although gold prices have fallen below $4,000 per ounce, causing concern among many investors about a possible end to the bull market, YLG sees the bigger picture unchanged. Gold remains in a long-term uptrend cycle, known as the Grand Supercycle, which lasts about 70 years. Fifty years have passed, leaving around 20 years remaining in this upward phase.
However, being in a long-term uptrend doesn't mean prices rise continuously. In the short term, the market is in Wave 4 of the Elliott Wave principle, which is a corrective or consolidation phase.
Currently, the gold market is clearly driven by two opposing forces: "Short-term selling pressure" and "Long-term buying pressure"
The first is selling pressure from financial investors.
Many investors have gradually reduced their gold holdings and shifted funds into assets with higher returns, including
As gold prices have corrected over 20% from their peak, while many other assets provide better returns, gold’s appeal among short-term investors has clearly diminished.
Meanwhile, gold ETFs continue to reduce their holdings gradually, maintaining downward pressure on prices.
The second force is strong buying by central banks.
Despite private sector funds flowing out, central banks around the world, especially China, persist in accumulating gold steadily.
YLG views this central bank buying as a key factor supporting gold prices and preventing a full bear market. Thus, the market currently reflects a battle between long-term central bank buying and short-term selling by investors and ETFs.
When asked about the critical $3,900 support level, Phaworn responded to Naowarat Charoenprapin, host of Money Chat, with YLG's assessment:
If prices hold above $3,900, the market may consolidate sideways before recovering.
YLG's research shows that several financial institutions, which previously predicted gold could reach $6,000 per ounce, have revised their targets downward due to changing interest rate and inflation conditions, including:
JP Morgan lowering its target to about $4,500,
Regarding investment strategy, Phaworn advises that when gold weakens, it is a chance to accumulate gradually rather than panic sell.
In the short term,
key resistance is at $4,200.
Phaworn reiterated that the suitable strategy now is:
"Buy on weakness, sell near resistance," rather than chasing prices higher. He wished everyone good luck!