Gold surges amid stronger safe haven appeal

Because of its continued appeal as a safe haven to central banks and investors, gold continues to find support in the face of geopolitical risk aversion. Tuesday sees a stabilization of the gold price in the $2,350s, trading at $2,352.14, up +0.69% at the time of writing, as demand for the safe-haven asset is sustained by geopolitical uncertainties.

The IMF issues a warning, claiming that countries are reassessing their trading partners due to national security and economic concerns, putting global commerce at danger. Trade alliances are breaking up along geopolitical lines as a result of Western and US sanctions against Russia, Iran, and other emerging market countries.

The move by BRICs nations away from the use of the US Dollar as the medium of international trade has increased demand for Gold as a possible replacement. This has been the main reason for the surge in non-Western central bank demand for Gold and a corresponding reduction in US Dollar reserves. Gold is seen as a possible replacement for the US Dollar as a safe store of value in international trade deals between nations with volatile domestic currencies, according to Carnegie Endowment for International Peace.

Gold price upside may be capped by US data, as survey data from the Reserve Bank of New York showed US consumers still expect shop prices to rise over the next year. The Federal Reserve might have to keep interest rates elevated for longer to wrestle inflation down. Since Gold is a non-interest-bearing asset, it’s a less attractive option when real interest rates are high.

Technical analysis shows that gold price (XAU/USD) has found a floor after backsliding over recent sessions. Gold broke below major support from previous highs at around $2,350 but has since found support just above another set of highs at around $2,330. The precious metal remains in a bullish short-term trend, which is likely to resume and push prices higher again.

If the uptrend does resume, the next target for Gold would be around $2,400, roughly at the April highs. A breakback above the $2,378 May 10 high would provide confirmation. The medium and long-term charts (daily and weekly) are also bullish, adding a supportive backdrop for gold.