Gold Talking Points:
- While gold has been in a parabolic-like move ever since Jerome Powell’s speech at Jackson Hole, last week saw the move take on a new degree of strength as price aggressively broke-above the $3500/oz level.
- There’s been only a minimum of pullback in the move so far after gold spent four months brewing the bull pennant, quite similar to the two months to finish last year when a similar formation set up into the 2025 breakout.
- Gold prices are now 80% above last year’s low, which has largely been pushed by a dovish FOMC even as inflation has remained high. If we do see the Fed pare back rate cut expectations at their September meeting, there could perhaps be pullback potential, but for full on reversals, it would seem a hawkish turn from the FOMC is not currently nearby.
Gold prices have been in a massive bull trend now for the past year and a half, with the metal gaining more than 80% over that span of time. That move has been followed closely in these articles, as seemingly small items have led to large rallies, with the source going back to an episode back in February of last year.
On February 13th of last year, US CPI was released to a larger than expected print. And that wasn’t the first above-expectation CPI print that was seen around that time, and worry had begun to build that the Fed might not be able to cut rates later in the year like markets had been expecting.
Up to that point, gold held support above the $2k/oz level, which was resistance until December of the year prior. But as the Fed highlighted rate cuts on the way in late 2023, gold was finally able to push above that vaulted psychological level, and for the first month and a half of 2024 trade, that price had become support. Until the CPI release in February, that is.
Suddenly, gold prices pushed below the big figure and that day of February 13th was the first daily close below the $2k/oz level. A day later, Chicago Fed President, a widely-watched Fed figure had a statement seemingly dismissing the CPI print, saying something along the lines of ‘lets not get all flipped out about a single inflation print.’
A day later gold jumped back above the $2k/oz level, and in the almost nineteen months since it hasn’t traded below that price. That comment helped to trigger a massive rally in gold that’s only paused for a couple of points along the way.
Gold Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
Interestingly it was the Presidential election last year that seemed to give gold bulls a reason for pause. More likely, this had something to do with anti-fiat and anti-USD flows pushing into cryptocurrencies as a crypto-friendly president had just been elected into office.
While the gold rally did pause for the final two months of 2024, it didn’t go away completely; and as a matter of fact, with a rally like we saw earlier in the year, normally there would be larger motive for profit taking. That didn’t really happen though as bulls came into show support at increasingly higher-lows, making for a symmetrical triangle that made up a bull pennant formation.
As we came into 2025, bulls began to push again, and the breakout extended, this time, running up to the $3500/oz level in April, at which point a similar pause began to show.
This time, the symmetrical triangle built over a four-month period, and that lasted all the way until two weeks ago. It was the combined force of Powell’s speech at Jackson Hole along with the reaction to the Core PCE print that helped gold bulls to finally take out the $3500 level, and that’s since led into a continued breakout into this week.
Gold Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
Gold - What’s Behind the Push
Gold is a non-yielding asset, and that can actually be a strength. When rates are low but inflation is high, holding yield-based assets like bonds isn’t very attractive, as the income produced is losing more and more purchasing power. When the Fed cuts rates even with inflation being high, gold can be an attractive safe harbor – and this is at least part of the reason why gold prices began to rally last year when Austan Goolsbee seemed reticent to temper hopes for rate cuts even with inflation remaining extremely high.
To be sure, USD-weakness can play to the long side of gold as gold is priced in USD, and like pair-based markets like spot FX, that can have a mathematical effect where a weaker USD means a stronger net value of the function, as a whole.
But if we’re in a backdrop where there’s dilution being expected across a swath of fiat currencies, like the USD and Euro at the same time, that impact may not be as noticeable in the EUR/USD quote. But for gold? Well, gold becomes an attractive place for capital to flow to avoid the dilutionary impact of higher inflation and lower rates.
That said – this is still a market, and while a market can remain irrational for a while, it also doesn’t make it smart to just leap in and hope that matters work out. This is where the rubber meets the road with gold, at the moment, as the metal has flung so far beyond any recent resistance points that it’s difficult to catch.
What investors can do, however, is try to be patient. This does risk missing out on continuation setups, but that can potentially be seen as more attractive than getting caught buying a top. With next week’s PPI and CPI data, there’s opportunity for rate expectations in the US to pare back a bit. If we see headline CPI cross above 3% and Core CPI jump above last month’s 3.1%, the 150 bps of cuts priced into the end of next year suddenly become a daunting prospect, and perhaps this could be reason for gold bulls that have held on through the breakout to take profits.
This is where support could come into play and that would be one way for an investor or trader to move forward on gold right now, that would eliminate the need to chase a parabola. At this point, there’s a number of spots to look for support to develop at, such as the $3500 level that was resistance back in April but, to date, hasn’t been tested as support. Or, perhaps, the $3435-$3451 zone that was resistance three different times until the breakout after Core PCE.
Gold Daily Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Strategist
