- Gold has posted three consecutive weekly gains and is on track for a sixth straight month of positive performance
- Falling dollar and yields have boosted the appeal of gold and other non-interest-bearing assets, driving recent gains
- Technical Analysis: Charts indicate continued bullish momentum, with key resistance levels broken to potentially support further price increases
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Gold may have started the new week quietly, but it has demonstrated strength once again, achieving three consecutive weeks of positive closes despite a minor dip in the latest session on Friday.
The precious metal appears poised to conclude its sixth straight month of gains. Over the past ten months, gold has only seen a single decline—a modest 1.1% drop in January. This consistent upward trend means dip-buying strategies are continuing to remain more effective than shorting gold.
Factors Behind Recent Gold Rally
The recent surge in gold prices can be attributed to a declining dollar and falling bond yields, which have enhanced the attractiveness of assets with low or no interest returns. Alongside gold, the Japanese yen staged a rebound last week. The primary catalyst for these movements has been data indicating diminishing inflationary pressures.
Specifically, the Consumer Price Index (CPI) unexpectedly dropped by 0.1% month-on-month in June, reducing the annual rate to 3.0% from 3.3% in May. Core CPI also fell short of expectations, and the University of Michigan’s Inflation Expectations index for July, which measures consumer predictions about price changes over the next 12 months, decreased to 2.9% from a revised 3.0% in June. However, the Producer Price Index (PPI) showed stronger performance in both headline and core measures, which likely influenced gold's inability to close positively on Friday.
Positive Outlook for Gold
Despite a minor pause in June, where gold recorded only a small gain, the outlook remains favorable. June was the first month since February without new record highs following a series of all-time highs in March, April, and May. The absence of significant reversal patterns in June has kept bullish investors optimistic. As we progress through July, gold remains well-positioned in positive territory.
Even a potential rebound in the US dollar may not be sufficient to disrupt gold's rally. The metal has shown resilience against dollar strength at various points throughout the year, indicating that investors view gold as more than just a foreign exchange product. Its appeal lies in wealth preservation, particularly as inflation has consistently outpaced forecasts, significantly diminishing the purchasing power of fiat currencies across the globe. Thus, gold continues to attract interest for its value retention capabilities.
Technical Analysis and Trading Strategies on Gold
Gold’s technical charts remain bullish, suggesting that focusing on bullish setups is prudent when trading XAU/USD.
Weekly Chart Analysis:
On the weekly chart, gold has broken out from a triangle continuation pattern after a multi-week consolidation. This breakout points to the resumption of the long-term bullish trend, with the bulls targeting liquidity above May’s all-time high of $2,450.
Daily Chart Analysis:
On the daily chart, gold exited a bull flag pattern to the upside at the end of June, leading to subsequent technical buying in the first half of July. Recently, gold has surpassed the resistance zone around $2,380-$2,390, now serving as a critical short-term support. Remaining above this zone will keep the short-term trajectory of gold skewed towards further gains.
Short-term resistance is identified around $2,420, which could mark a potential right shoulder area. Surpassing this level will target May’s high of $2,450, followed by Fibonacci extension levels against the May high at approximately $2,495 (127.2%) and $2,550 (161.8%).
Conclusion
Gold's performance has been bolstered by a weaker dollar and reduced bond yields. Its strong 2024 gains have reinforced its status as a reliable asset for wealth preservation amidst rising prices. The charts agree: technical indicators suggest continued bullish momentum, making dip-buying a favored strategy with the potential to reach new record highs soon.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.