Gold futures continued to build on its recent rally with the current price approaching its all-time high of $2,078. The price of gold has gained more than 12% from its March low and has broken above the phycological $2,000 level, inspiring hopes for a sustained move higher.

The strong rally in gold started in September 2022, coinciding with the downtrend in the U.S. Dollar, which is currently trading near 52-weeks lows. The recent banking crisis helped the precious metal to rebound even further and near-term price action would be critical to confirm if gold is starting a new secular bull run or not.

Signs that disinflation in the U.S. is gathering pace would allow the Fed to pause rate hikes sooner rather than later, with markets widely expecting a final 25-basis point rate hike in May before the Fed pauses. Given its latest rebound, at this point gold does not appear to be particularly concerned whether the Fed delivers another 25-basis point hike in May or not.

Gold generally rises in periods when the greenback is weakening. Long-term downside risks to the U.S. Dollar continue to rise, alongside money markets pricing the Fed to start cutting interest rates by the end of this year.

These expectations may help gold to re-test its all-time highs in the near-term, with $2,078 the key level to monitor, as it would provide clues about the sustainability of the current up trend.

While volatility and choppy price action could be seen in the near-term, a decisive break above the record high would signal an extension of the current uptrend with first upside target of $2,100 followed by $2,200.

Higher interest rates usually dull the appeal of zero-yielding bullion, despite its traditional status as an inflation hedge. Nonetheless, gold greatly outperformed equity markets in 2022 and so far in 2023.

Gold’s outperformance could be attributed to its appeal as an insurance against a potential upcoming economic recession. According to the Federal Reserve’s minutes on Wednesday, the fallout from the U.S. banking crisis is likely to tilt the U.S. economy into recession later this year, which should continue to be a tailwind for the precious metal in the months ahead.

An extended impulsive move above $2,078 would be the ultimate confirmation that a new long-term uptrend has started, which could occur well before a technical recession is confirmed.

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