August 2nd, 2024, Gold – Only a short-lived pullback after speculative spike

Gold – Only a short-lived pullback after speculative spike

Over the past few days, the gold market has experienced significant volatility and a notable decline as well as a sharp recovery in prices. Following a gradual decline in price fluctuations since mid-April, volatility has increased significantly again in recent days. Gold – Only a short-lived pullback after speculative spike.

Review.. 

After a sluggish start to the trading year 2024, gold ended its consolidation phase in mid-February and transitioned into a strong trending phase. Initially, this led to a sustainable breakout above the multi-year resistance zone around USD 2,075. Consequently, gold prices surged further to USD 2,430 within just two months. However, the gold rally abruptly ended on April 12th with a significant price drop late on Friday afternoon. Despite further attempts, the bulls could not reclaim the USD 2,400 mark in the following week.

Instead, a tricky consolidation between approximately USD 2,300 and USD 2,400 began at a high level. Simultaneously, solid support around USD 2,280 to USD 2,300 was defended. Eventually, on Whit Monday, about five weeks later, gold temporarily broke out to a new all-time high of USD 2,450, only to quickly fall back into the sideways trading range. During this period, the support around USD 2,300 was breached several times without a sustainable downward breakthrough.

Assassination Attempt on Trump Causes a Short-Lived Spike in the Gold Market

Overall, the chart pattern gradually deteriorated as reversal signals steadily increased. On June 26th, gold fell below the psychological support at USD 2,300 once again. However, new buyers quickly entered the market, and the breach turned out to be a false signal (bull trap). Encouraged by this, gold prices surged again from the end of June to July 17th.

The failed assassination attempt on Donald Trump caused a spectacular spike to a new all-time high of USD 2,483. The joy over this new all-time high was short-lived, though, as gold made a sharp reversal and plummeted by about USD 130 to USD 2,353 within the following seven days. This brought prices back into the tough sideways range that had formed since mid-April. At the same time, an ugly reversal candle or “blow-off top” appeared on the weekly chart.

Just a week later, however, gold is back above USD 2,450 trying to reach the new all-time-high at USD 2,483. This resilient behavior is impressive and can be observed since mid of April already. Like a “Stehaufmännchen” (Stand-up man) gold is able to bounce back from any pullbacks or failures. The term “Stehaufmännchen” is German and is derived from a type of toy that always rights itself when knocked over, symbolizing the ability to recover from difficulties.

Relative Strength in Silver Was a Clear Warning Signal

Silver on the other hand, has not been following gold in recent weeks to new highs. While silver prices showed relative strength against gold in May, it recently failed to reach a new high. Instead, the annual high of USD 32.52 from May 20th was clearly missed, and a new two-and-a-half-month low of USD 27.29 was reached this Monday. Thus, silver’s relative strength in May turned out to be a clear warning signal, as suspected. The rally that began in early October 2023 is likely over, and, together with the correction in the stock-markets, silver might enter a healthy correction in the coming weeks and two to three months.

Harris’s Candidacy Heats Up the US Election Campaign and Fuels Uncertainty

Simultaneously, recent political developments in the USA have led to significant disruptions in the financial markets. Initially, the increasing likelihood of another Trump presidency triggered a rotation away from technology towards value stocks. This movement was abruptly stopped when President Biden announced his withdrawal from the election campaign, and Vice President Kamala Harris declared her candidacy. This unexpected turn of events caused great uncertainty among investors, as an intense and possibly prolonged election campaign is now expected until November 5th and possibly beyond.

As a result, nearly all market sectors came under pressure, with technology stocks being particularly affected. On Wednesday 24t of July, the Nasdaq 100 recorded its largest drop since October 2022, with a daily loss of 3.7%. Overall, over USD 1.1 trillion in market capitalization was wiped out from the US stock market in a single trading day last week. Even gold and silver prices were not able to escape this carnage. In the meantime, stock-markets have corrected further following a rather uncertain-looking press conference of the Fed this Wednesday.

Overall, it seems as if the typically correction into September and October has started in the financial system. The situation once again highlights the close interconnection between political events and short-term market reactions. Investors must brace themselves for continued high volatility in the coming months, as the US election campaign and its potential impacts on economic policy will continue to influence the markets.

Chart Analysis – Gold in US-Dollar. 

Weekly chart: Stochastic snaps with a renewed buying signal.

On the weekly chart, gold had been increasingly consolidating since mid-April. The temporary breakout to the new all-time high of USD 2,483 seemed to be a bull trap last week. This week’s large bullish candle however makes this assumption very questionable. While stock-markets most likely are sliding into a correction, gold is holding up very well so far. But to unleash new momentum gold needs to break through the psychological resistance around USD 2,500. That would also mean to jump out of the uptrend channel of the last 22 months.

Overall, the weekly chart is slightly bullish as the slow stochastic has switched back up. Despite growing negative divergences, the uptrend is still intact.

Daily chart: Stochastic buy signal has more room to the upside..

On the daily chart, last week’s price drop has led to a revisit of the 50-day moving average (USD 2,363). This moving average has barely risen since early June due to the extended sideways phase. However, prices bounced off this solid support and rallied USD 115 from there in a matter of six days.

The resulting new buy signal from the stochastic oscillator still has a lot of room to the upside and indicates that the rally has further to go. However, the user daily Bollinger Band (USD 2,477) will likely create some struggles for the bulls.

In summary, the daily chart is bullish. Support between USD 2,420 and USD 2,450 will have to hold for this rally to continue.

Conclusion: Gold – Only a short-lived pullback after speculative spike

Since October 6th, 2023, gold prices have significantly increased from USD 1,810 to USD 2,483. Although the rally was not a one-way street and was repeatedly interrupted by pullbacks and consolidations, the overall result is an impressive price increase of +37.2%. With the new all-time high at USD 2,483 and the subsequent sell-off down to USD 2,353 as well as the quick recovery towards USD 2,477, the bulls are still in control of the gold-market.

However, we have repeatedly pointed out since last year that after the successful breakout above USD 2,075 and a rally towards approx. USD 2,535, there should be a “textbook-like” pullback to the former resistance zone sooner or later. So far, gold prices have only consolidated very strongly at a high level since mid-April. The vertical final exaggeration, which typically brought the “end of the line” in the past, was missing. We believe that this behavior is now taking place with the sharp spike to USD 2,483 and the continued rally.

If this assumption is correct, the gold price might reach a few more higher highs around and slightly above USD 2,500. Ultimately the rally is about to end though and gold prices may finally start to correct as the liquidity is shrinking due to the stock-market correction.