Gold price forecast amid a sharp rise in US real rates

Gold price moved back above $2,000 for a short period in 2022, threatening to break the all-time high made in 2020. For close to two years, the yellow metal trades in a $200 range, and many investors have lost their patience waiting for a big breakout.

One of the main arguments for owning gold is that inflation in advanced economies is getting out of control. Higher inflation is common in emerging markets, but until the COVID-19 pandemic, central banks in developed ones had a hard time bringing inflation to their price stability target.

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But the pandemic changed everything. Inflation rose everywhere, reaching four decades high in the United States, for example.

Because gold is traditionally viewed as a hedge against inflation, many investors bought the yellow metal in the hope of offsetting the rise in the prices of goods and services. But the price of gold did not rise as many had hoped.

Yet, it does not decline either. Gold is inversely correlated with the US yields, but the rise in real yields did not affect the price of gold significantly.

In other words, gold is supported by rising inflation, and it looks like only a matter of time until another attempt at all-time highs. If we look at the historical data, then gold is still a hedge against inflation, thus, the current consolidation may be just that – a consolidation before another leg higher.

Double top or ascending triangle?

While gold did trade above $2,000 twice, it had a hard time overcoming $2,100. At this point, one may talk about a double top pattern, which is bearish, or about an ascending triangle, which is bullish.

Out of the two, given the higher inflation and gold’s price resilience, the most likely scenario is the bullish one. This is because an ascending triangle forms when the market pressures a horizontal resistance area, exactly as the price of gold does against the $2,100 area.

A daily close above $2,100 suggests that resistance has given way, and the measured move points to a new leg higher towards $2,500. On the flip side, if bears push the price of gold below $1,800, the bias turns bearish.

All in all, gold has found buyers on every dip in the last couple of years. The ability of the price of gold to stay close to all-time highs is an indication of a bullish build-up before a big breakout higher.