Gold faces key test at $5,100

Gold has been hovering around $5,000 per ounce for the past two weeks. A disappointing start to the week, with a drop to $4,850, was followed by a gradual rise to $5,030.

The precious metal proved resilient to the hawkish FOMC minutes, the strengthening of the dollar and the rise in US Treasury bond yields (its main competitor). Geopolitical factors appear to be supporting demand, as some investors view gold as a hedge against market volatility. In addition, there are still concerns that with the change of the Fed chair in May, the FOMC will move to a sharp easing of policy. In the short term, this rather bullish external backdrop falls on fertile ground, as the price is about 13% below its peak.

Since the beginning of February, gold has been forming a sequence of higher lows, a clear signal that position buyers are becoming less patient. At the same time, however, selling in gold has increased as it approaches $5,100. Perhaps it is only worth discussing further bullish prospects after a confident consolidation above this mark. At the same time, we continue to believe that the bullish rally, which lasted more than three years, has ended. 

For now, we see a scenario similar to 2011, when there were also many attempts to return the precious metal to growth. A similar initial drop of more than 20% later in 2011 and in 2012 was recovered by four-fifths, but it took nine years to break the record. Applied to current prices, similar resistance is around $5,300, but we see that even $5,100 is a tough nut to crack.