Gold’s Gravity-Defying Rally: Structural Tailwinds and Tactical Setups Point to $3,700
Record Peak, Tactical Pullback
Spot gold printed an all-time high at $3,357.40/oz on April 17 before easing to the low $3,320s as traders locked in pre-holiday gains. Even after a modest 0.6% dip, bullion is up over 2% this week and nearly 25% year-to-date—underscoring the intensity of underlying demand.
Why This Spike Looks Different
1. Trade-war tail risk: Trump’s probes into critical imports (minerals, pharma, chips) revived fears of tariff escalation with China and the EU. Investors are flooding into assets resilient to policy shocks and supply disruptions.
2. Deeply negative real yields: The U.S. 10-year yield fell from 4.59% to around 4.33% while breakevens rise, pushing real yields further negative—a sweet spot for non-yielding assets like gold.
3. Central bank demand: EM central banks led by China and India added nearly 450 tons in Q1, and ETFs recorded the longest inflow streak since 2020. Goldman now sees fair value at $3,700 (range $3,650–3,950).
Policy Cross-Currents Support a Higher Floor
The ECB’s seventh 25 bp cut in 12 months widened its divergence from a data-dependent Fed. This pressure weakens the dollar, mechanically boosting gold. Meanwhile, Fed Chair Powell’s concern that tariffs may boost both inflation and unemployment keeps the FOMC in a nervous pause—one rate cut could further energize gold’s momentum.
Microstructure and Technicals
Comex gross-long positions are at 18-month highs, though options skew has normalized—suggesting two-way flow post-profit taking. Technical support lies at $3,280 (38.2% April retrace), $3,245, and the 20-day EMA near $3,200. A weekly close above $3,330 would confirm breakout from a flag formation.
Potential Speed Bumps
- Trade détente: Positive Trump headlines (e.g. Japan, Italy) could trigger positioning cleanouts.
- Equity margin calls: Large tech losses may force liquidation of profitable gold longs, as in the 2020 flash crash.
- Dollar squeeze: A DXY rebound—especially if haven flows shift to JPY—could temporarily cap gold.
What Could Extend the Rally to $3,700?
- Fed cuts: Three 25 bp cuts would send real rates deeper negative, turbocharging gold.
- Tariff re-escalation: If the 90-day pause lapses with no deal, 125% levies on China could return.
- Capital flight from equities: Another tech-led drawdown could funnel flows into metals, mirroring the 1980 rotation—but this time with stronger institutional backing.
Portfolio Strategy
- Core allocation: $3,250 is the new pivot—buy dips to $3,200 targeting $3,550 medium term.
- Tactical overlay: Consider 3,300/3,400 call spreads financed by 3,150 puts to express directional bias while limiting decay.
- Hedge structure: Pair long gold with short EUR/JPY optionality—a yen rally is one of few catalysts that could force gold liquidations.
Conclusion
The pullback is a pause, not a trend reversal. Unless tariffs vanish and real yields spike, the path of least resistance remains upward. With structural and tactical drivers aligned, $3,700+ is within reach in Q4.
