Is gold price preparing for a reset?

Although gold’s momentum has seemingly stalled in recent weeks, it remains one of the best-performing assets of 2024, buoyed by economic uncertainty amid a potential recession.

Notably, gold reached a high of $2,532, and a bullish bias persists despite the recent consolidation between $2,450 and $2,530 mark. Currently, the historical inflation hedge is trading at $2,518, reflecting year-to-date gains of 22%. 

Based on recent price movements, gold has struggled to mount any momentum toward the $2,600 resistance, leading to questions regarding a possible impending reset. 

Is gold about to reset? 

In this line, on September 5, Bloomberg Intelligence Senior Commodity Strategist Mike McGlone, in an X post, outlined elements at play regarding gold’s possible reset. 

McGlone emphasized the need to monitor the commodity’s short-term performance as its price shifts relative to major asset classes and economic indicators. He pointed out that gold is showing signs of a potential mean reversion in its favor compared to the stock market, which the success of artificial intelligence (AI) has driven. This development could signal concerns for the broader economy.

McGlone also compared the S&P 500 Index to U.S. nominal gross domestic product (GDP) and gold prices, noting that the precious metal has a historically low ratio to equities. However, current conditions hint at a potential trend reversal.

“Is Gold Signaling a Great Reset? Ratios Are Leaning That Way – Gold has been gaining momentum vs. the AI-driven US stock market, which isn’t a good sign for the global economy,” the expert said. 

The concept of mean reversion suggests that market prices often return to their long-term averages after significant divergence, meaning gold’s relative weakness to equities may not last. If the stock market normalizes, investors may seek safety in gold, pushing its price higher.

Gold’s potential resurgence 

He further highlighted that gold could see a resurgence due to factors like ‘buried U.S. stock market volatility’ and ‘high interest rates.’ These factors are significant, especially when considering China’s role as a key buyer of gold amid deflationary pressures. If interest rates normalize, gold could experience a bullish breakout.

Additionally, historical trends indicate a bullish long-term outlook for gold. Past periods marked by monetary easing and liquidity injections have typically led to surges in gold prices as central banks withdraw support. 

According to McGlone, with rising geopolitical tensions globally, gold’s role as a safe-haven asset may strengthen, aligning with past patterns of investors turning to gold during instability.

In summary, fears of a U.S. recession have escalated in recent months, driving increased investor interest in gold. While the metal has cooled off recently, anticipation is building around the next possible Federal Reserve interest rate cut, which could reignite its upward momentum, backed by fundamentals highlighted by McGlone. 

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