Gold on Course to Retest Key Highs
Gold has started 2025 with a bang, rallying more than 5% in January and reigniting hopes of a test of the all-time highs reached last October. As momentum builds and macroeconomic conditions remain supportive, the pressing question for traders is whether the metal has enough fuel to break into uncharted territory.
The Factors Driving Gold’s Strong Start to 2025
Gold’s rally has been driven by two dominant macroeconomic forces that continue to support its upward trajectory:
1. The Trump Effect
Donald Trump’s second term as U.S. president has placed renewed focus on economic growth at any cost, with significant fiscal spending and a push for further interest rate cuts. Trump has openly pressured the Federal Reserve to ease monetary policy, even as inflation remains above its 2% target. This creates a favourable environment for gold, as lower rates reduce the opportunity cost of holding non-yielding assets while a weaker dollar adds to its appeal.
2. Central Bank Buying
Central banks have continued to bolster their gold reserves, with net purchases of 53 tonnes in November 2024 alone. The People’s Bank of China, after a brief pause in buying, resumed its accumulation with an additional 5 tonnes. This trend reflects a broader diversification away from the U.S. dollar, driven by geopolitical tensions and a preference for stable, tangible assets. Central bank demand creates a solid foundation for gold prices, adding to the metal’s allure as a safe haven amid ongoing global uncertainties.
Technical Analysis: Eyeing the October Highs
Gold’s price action this year has been impressive, with the metal reclaiming its 50-day moving average in January, a key level that had capped its progress in December. The RSI is also trending higher, currently near 65, indicating strong bullish momentum. Short-term traders will note that gold has pushed through resistance levels that previously defined November and December swing highs, setting the stage for a retest of October’s peak.
However, that peak represents a critical psychological and technical barrier. For a meaningful breakout, traders will be watching for a period of tight consolidation just below resistance. This pattern, often a precursor to a breakout, would signal that the market is building the energy needed for a sustained move higher. A breakout supported by strong volume would confirm that buyers are firmly in control.
Key signals to watch include how price behaves at resistance—whether it consolidates tightly or reverses—and whether there’s an uptick in volume to back any breakout attempts. If momentum continues to build, gold could find the strength to challenge the highs. Otherwise, a pullback to test lower support levels may be on the horizon.
Gold Daily Candle Chart
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