Gold shows “unprecedented strength” at record high. Warning signs flashing.

Over the past five days, gold has risen by 4.3%, bucking declines in stock and bond markets, where…

Dow Jones Industrial Average

And

Standard & Poor's 500

It fell from its highs this week.

“Gold continues to defy gravity,” Achilleas Georgolopoulos, an analyst at brokerage XM, wrote in a note. “It is showing unprecedented strength and managing to rise under all market scenarios.”

In fact, gold has gained amid what may seem like contradictory catalysts.

Prices have risen in recent weeks on expectations that the Federal Reserve will cut interest rates soon, which would put downward pressure on bond yields and the dollar, a trend that typically benefits gold. But the precious metal continued to rise this week, as inflationary signals in economic data put interest rate cut bets under pressure – a factor that has pushed stocks – as traders appear to be looking for it as an inflation hedge.

“The dollar's decline could have been a factor in yesterday's move, but gold rose even on dollar-positive days,” Georgolopoulos wrote. “This is another indication that there are other forces at play, such as strong buying appetite from some sovereign countries that are trying to diversify their dollar holdings.”

But the rise in gold prices is not limited to the pillars of interest rates, inflation and the dollar.

“Support has come from a few sectors where demand has held up particularly well. Indeed, central banks themselves continue to add gold to investment portfolios,” analysts at Bank of America wrote in a note. This has perhaps been most evident in China, Where is the People's Bank of China [People’s Bank of China] His exposure has increased. This purchase has also attracted purchases from retail market participants in China.

In fact, buying Chinese gold has been a key part of the narrative amid the yellow metal's recent rally. While China's central bank has been a consistent buyer, “the biggest driver appears to be buying from retail investors,” analysts at research firm Gavical Dragonomics wrote in a note.

They added that with the collapse of China's real estate sector and the weakness of the stock market, “a larger portion of Chinese household savings is flowing to gold as an alternative.”

While gold is still benefiting from fundamental support – and the momentum from this recent rally has likely attracted new investors – such a rapid pace of gains for typically strong and overweight commodities seems overdone.

“The warning signs are flashing,” Kathleen Brooks, an analyst at brokerage XTB, wrote in a note. “At this point, it is difficult to see the gold price coming under severe downward pressure, but we note that open interest in gold contracts appears to have peaked and the gold price is now 15% above the 200-day simple moving average. This indicates “It is at extreme levels and may be due to a decline.”

Correction may cause some of the yellow metal's luster to be lost. But while other analysts point to reasons why gold will continue to rise, it may not be worth betting on bullion just yet.

Write to Jack Denton at [email protected]