Investment demand for gold surged in 2020 due to the COVID-19 pandemic, which triggered a global recession, unprecedented monetary and fiscal stimulus measures, and heightened market volatility. According to the World Gold Council (WGC), global gold-backed exchange-traded funds (ETFs) saw record inflows of 877 tonnes in 2020, surpassing the previous record of 646 tonnes in 2009.

Gold is one of the most sought-after commodities in the world. It has been used as a store of value, a hedge against inflation, and a safe haven asset for centuries. But can gold continue to shine in the current market scenario?

Gold has been in a strong uptrend since 2019 when it broke out of a multi-year consolidation pattern. It reached an all-time high of 2075 in August 2020, before correcting to 1765 in November. Since then, it has bounced back to test the previous high twice, forming a double-top pattern.

A double top consists of two peaks that are roughly equal in height, separated by a trough. Although a double top is considered resistance from a technical perspective; however, any consolidation near the high point indicates strength.

Gold has strong support that exist around 1900. It is currently trading between 1950-2000, which is a critical resistance zone. If gold can break above 2000 and sustain above it, it will stage a breakout and invalidate the double-top pattern and resume its uptrend. However, if gold fails to break above 2000 and falls below 1900, it will confirm the double top pattern and can stay under broad consolidation for some more time.

The monthly chart shows some positive signs for gold. The moving average convergence divergence (MACD) indicator, which measures the momentum and trend direction of an asset, has crossed above its signal line and turned bullish. This indicates that the buyers are gaining strength and could push the price higher.

From the Indian context, Gold has been trading in a narrow range for the past few weeks, as it faces strong resistance at 60000 levels. This level has been tested several times but failed to break above it convincingly. A sustained move above 60000 would signal a bullish breakout for the precious metal, opening the door for further gains towards 65000 rupees and beyond. However, if gold fails to overcome this hurdle, it may consolidate with the support that exists in the 55000-56000 zone.

Another factor to consider is the relative performance of gold against silver. Gold and silver are often correlated, as they are both precious metals that respond to similar market forces. However, sometimes they diverge, as they have different industrial and monetary uses.

The relative strength (RS) line of gold against silver shows how gold is performing relative to silver. A rising RS line means that gold outperforms silver, while a falling RS line means silver outperforms gold.

The RS line of gold against silver has been broadly rising since 2011, indicating that gold has been more favored than silver over the long term. However, in the past year, the RS line has been mostly flat, indicating that both metals have been performing similarly. This suggests that there is no clear advantage for either metal at the moment.

As of now, the price behavior of Gold in the 1950-2000 range needs to be closely watched. Any meaningful move above 2000 is likely to take the precious metal higher toward 2070-2075 levels. However, until that happens, we might well see Gold consolidating in a 1900-2000 zone.

Foram Chheda, CMT