With long-term support and constrained supply, gold around $2,600/oz is a buying opportunity – IG’s Rudolph

In a piece published on Nov. 13, Rudolph analyzed the stability of the precious metal’s long-term uptrend. The first major factor he looked at was sovereign buying.

“​Central bank gold purchases have reached historic levels, with nearly 400 tons acquired in the first half of 2022 alone – the fastest pace in 55 years,” he wrote. “By July 2024, global purchases hit a near 14-year high.”

​Rudolph said the surge represents a significant departure, as central banks have shifted “from net sellers to aggressive buyers” over the past decade. “Major institutions in Russia, China, India, Poland, and Hungary have substantially increased their gold reserves,” he noted.

​“The primary motivation behind this trend is diversification, with central banks seeking to reduce their exposure to currencies and bonds,” he said. “With global debt at record levels, gold serves as a crucial hedge against market risks. These substantial purchases from central banks have created sustained upward pressure on gold prices, contributing to the record highs made near the $2,800.00 per troy ounce mark just a few weeks ago.”

In recent years, geopolitical tensions and rampant inflation have been added, which have served to boost gold’s safe-haven appeal. “Russia’s invasion of Ukraine in 2022 triggered significant market volatility, prompting investors to seek refuge in gold trading,” Rudolph said. “​The 2021 to mid-2023 spike in inflation further enhanced gold’s appeal as a store of value. Major economies like the US and Europe experienced 40-year high inflation rates which have since then died down.”

​But despite the declines seen in inflation since mid-2023, Rudolph believes investors continue to see gold as a strong option for preserving purchasing power. “​The combination of geopolitical uncertainty and inflation worries, even after president-elect Donald Trump’s victory in last week’s US presidential election, has established a robust foundation for sustained gold demand among institutional and retail investors alike,” he said. “​Even if, as some hope, the 47th president of the United States of America might be able to help end the war in Ukraine, concerns about his foreign policy could potentially facilitate an invasion of Taiwan by China. Meanwhile the risk of an escalation between Israel, Iran and its proxies remains high.”

​And the potential for another round of inflation is also present. “Trump’s pledge to impose tariffs of between 10%-to-60% on imports, even on US allies, such as European car makers, could lead to retaliatory tariffs being imposed on US exports, potentially creating another inflationary spiral which should lead to a higher gold price,” he said.

​Another factor supporting gold prices is the recovery in jewelry demand, which “adds another layer of support to the overall gold investment case,” he said.

Meanwhile, the gold supply remains constrained, which should also support the market.

​“Despite rising prices, gold production has remained relatively flat over the past decade, creating a significant supply-demand imbalance,” he said. “​Several factors constrain output, including declining ore grades, scarcity of major new deposit discoveries, and heightened political risks in key producing regions. Environmental concerns have also limited expansion of mining operations.”

​Rudolph said that this combination of supply limitations and robust demand “suggest that higher gold prices may persist for the foreseeable future. The tight supply situation provides fundamental support for gold prices, making it an attractive market for both trading and investment purposes.”

The current price range and technical analysis also support a positive long-term outlook for the yellow metal.

​“Gold’s performance over the past year, up around 35% year-to-date in late October, has proven competitive with traditional assets like stocks and bonds, while offering portfolio diversification benefits,” Rudolph said. “The $200.00 and 6% drop in the gold price from its $2,790.17 per troy ounce October record high to this week’s low at $2,589.73 amid de-escalation in the Middle East and the removal of much uncertainty following Donald Trump’s clear and rapid presidential election win, might represent a long-term buying opportunity.”

​From a technical analysis perspective, Rudolph said the $2,600 per ounce level may be attractive to investors because “the February-to-November uptrend line is currently offering support.”

​“A continued decline and weekly chart close below the 18 September low at $2,546.86 could lead to a deeper correction, though,” he warned.

​“Longer-term the precious metal’s endurance as a store of value through centuries of economic cycles continues to attract investors seeking stability in uncertain times,” Rudolph concluded. “​Market analysts generally maintain positive price forecasts, supported by the combination of central bank buying, investor demand, and supply constraints.”

Posted by:

Jack Dempsey, President

401 Gold Consultants LLC

jdemp2003@gmail.com