Gold surges again: Will it break the $3,000 barrier?

Gold is moving higher again after a two-week consolidation, a natural pause following its strong rally from the 18 December low of $2,582 to $2,956 in 67 days. After trading sideways, gold broke to the upside over the past two days.

The catalyst for this move is the recent drop in US inflation. Headline inflation fell from 3% to 2.8%, breaking its upward trend and reaching its lowest level since December 2024. Core inflation also declined to 3.1% after remaining stuck at 3.3% for months. This decline is strengthening expectations that the Federal Reserve will cut interest rates.

The next Fed meeting is in five days, on 19 March. While there is a 99% probability that rates will remain unchanged, markets are confident that rates will be cut three times by year-end, bringing them to the 350–375 basis points range. The expectation of aggressive rate cuts stems from concerns that US tariffs on the EU, China, and Canada, along with government spending reductions could trigger an economic slowdown.

Despite the lower inflation, 2.8% is still high for the US, and with the Fed holding steady, investors are turning to gold as an inflation hedge.

So, what are the next key levels traders are watching? Based on a short-term rectangle pattern, gold could climb as high as $3,025 per ounce in the near term. However, from an inflation-adjusted perspective, gold still has about 22% more upside before reaching the equivalent of its 1985 peak. This highlights the importance of actively trading gold rather than simply holding it long-term. Investors who bought gold in the 1980s have had to wait 45 years just to break even after adjusting for inflation.

In the short term, the trend remains bullish above $2,877, while in the longer run, traders are likely to stay bullish above $2,800. The biggest risk for gold right now is psychological, and investors getting overly excited. We saw this with Bitcoin when it hit $100,000, as everyone rushed to buy. A similar scenario could play out at the $3,000 psychological level for gold.

Another potential risk is a peace deal between Russia and Ukraine. While unlikely now, a solid peace agreement, especially one that includes European military support for Ukraine or guarantees against future Russian aggression, could significantly reduce demand for gold by lowering geopolitical risk.

Additionally, while it seems unlikely that Trump would step back from tariffs, it could ease concerns about a US economic slowdown and dampen gold demand. On the other hand, if he follows through on promises to cut income taxes, it could fuel inflation and drive gold prices higher.

Overall, the situation remains complex, but from a technical point of view, the trend remains clearly bullish, at above $2,800. What is your take on Gold? Trade it with ThinkMarkets and enjoy right spreads from just $0.19 and fast execution.