Gold price hits highest level in seven years

Overbought territory

The recent rally brought the metal to its most overbought level in two decades, with spot gold’s relative strength index at 87 on Monday.

While further escalation could trigger more upside in prices, the rally risks running out of steam as liquidity returns to the market after the New Year break, said ABN Amro strategist Georgette Boele.

“Investors came back from holidays and experienced a $100 higher gold price compared to when they left,” she said. “Some have bought it in a kind of panic way, while others who already hold gold will probably wait and see.”

Buying spree

Bullion is building on the largest annual climb since 2010, which was driven by the US-China trade war’s drag on global growth, easier monetary policy across the world’s leading economies and sustained buying from exchange traded funds and central banks.

“Negative real rates in the US and a weaker US dollar favour stronger precious metal prices in general,” said Giovanni Staunovo, a commodity analyst at UBS Wealth Management. “Thus, we see value in staying long the metal.”

The US Federal Reserve is unlikely to raise interest rates within the next six months, which will in turn probably keep a cap on the US dollar — both of which are “extremely positive” for gold, said Gavin Wendt, senior resource analyst at MineLife in Sydney.

Most precious

Palladium has also benefited from the optimism surrounding havens, as well as its own positive fundamentals. The metal is in a multiyear deficit as demand rises in autocatalysts amid stricter emissions standards.

Spot palladium hit a record $2,030.28/oz.

“Palladium, like gold, has been steadily tracking higher over the last two weeks, and the conflict between the US and Tehran seems to have bolstered this,” said Sean MacLean, research strategist at Pepperstone. “Demand for palladium is increasing faster than its supply, so the long-term trend is on the up anyway.”

With David Stringer and Cormac Mullen.

Bloomberg