Technology group Heraeus has described gold’s price performance over the last 18 months as “remarkable”, noting that, as the price nears $3 000/oz, signs of “excess frothiness are becoming clearer”, despite what appear to be firm fundamental drivers. 

In its ‘Precious Appraisal’ report, Heraeus points out that strong central bank and investor buying is supporting the gold price, with central banks looking set to continue to accumulate gold this year, though perhaps at a slower pace than last year.

The company notes that the People’s Bank of China (PBOC) added another 5 t to its reserves in January.

Additionally, investor exchange-traded funds (ETF) inflows have been robust since the start of the year, netting 34.5 t of inflows for year-to-date, versus 6.8 t of net outflows in 2024.

“However, not all fundamental drivers are positive. A high gold price has eroded jewellery demand in many countries, most significantly in China, the largest market, where demand fell by 24% last year while recycling increased,” says Heraeus.

The company says the ceasefire in the Middle East and tentative steps to a ceasefire in Ukraine may ease safe-haven flows, although uncertainty around US tariffs could shift the focus.

“The flows of metal to the US ahead of potential tariff [increases] have been notable, but it is unclear how much is new demand and how much is just a reorganisation of the location of storage for the bars.”

Technical indicators are also a cause for concern and suggest that the gold price may be due a correction, says Heraeus.

With an eighth consecutive weekly price gain following on from a 29% gain, in dollar terms, in 2024, gold’s weekly price momentum has exceeded the levels seen in October 2024 and August 2020 ahead of 9% and 19% declines, respectively.

At the same time, divergences have emerged between the relative strength index and the gold price on both a daily and a weekly price range.

Most notably, the company says, the gold price is well above its long-term moving average.

“Looking back as far as the 1970s, the spread between the gold price and its 200-day moving average has rarely been as large as it is currently, in nominal dollar terms. Each time it occurred – in 1980, 2011 and 2020 – the large spread was the result of an explosive rally and preceded a multi-year bear market for gold.”

While investor and safe-haven buying continues so can the price rally, but a correction is looking increasingly likely, says Heraeus.

In the short term, the $2 800/oz level could offer support and on a deeper pull-back the price could reach the $2 450/oz to $2 550/oz range, the company notes.

The company says the gold price could see its eighth consecutive week of gains, which is the longest streak since August 2020 when gold also had an eight-week rally.

However, in recent weeks, the speculative net long futures position has fallen to under 31-million ounces, compared with nearly 33-million ounces at the start of February, as speculators take profits despite the price of gold continuing to rally.

“This suggests that at least some market participants think the rally could be nearly done,” says Heraeus.

Additionally, the company says peace in Ukraine could shape the evolution of gold’s safe-haven demand, noting that senior US and Russian officials held extensive talks last Tuesday in Saudi Arabia, covering various topics including the potential end to the war in Ukraine.

“Gold safe-haven demand has been underpinned by escalating global trade tensions and the wars in Gaza and Ukraine. Even if peace were achieved in Ukraine and the ceasefire in Gaza upheld, [US] President [Donald] Trump’s campaign of tariffs still persists as a risk that would fuel safe-haven demand,” says Heraeus.

The company notes that the gold price hit yet another all-time high on February 20 of $2 955/oz, before cooling slightly to close at $2 937/oz on February 21.