Gold Stalls at $3900 But Are Bulls Finished?

Gold Talking Points:

• It was another impressive week for gold as spot gold prices were up another 3.38%.
• The $3900 level has finally given some pause to the move and logically, the $4k/oz level sitting overhead is bringing some impact despite not having traded yet. But, is this something that can lead to anything more than a pullback in gold?

Gold has now gained for seven consecutive weeks. This is after the bull pennant breakout that triggered around Jerome Powell’s speech at Jackson Hole, and with little expectation for the Fed to abandon the rate cuts that markets have priced in – even with high inflation – there’s little reason to think that the fundamental drive behind the move is anywhere near over yet.

But, fundamentals aren’t a perfect push point for price, and we saw this twice already during gold’s 90% rally from last year’s lows. There was a two-month period towards the end of last year, and then the four month outlay after the high in April of this year. In each instance, a symmetrical triangle developed, both of which were highlighted in these articles. And when that symmetrical triangle came along with a previously strong bullish move, they could be further qualified as a bull pennant formation.

Both broke out with aggression as the Federal Reserve continued to lean on lower rates and looser monetary policy. But – we can also glean from each of those instances something that could be helpful in trying to forecast future price movements – and that’s the potential for a pause as gold pushes closer and closer to the psychological level at $4k an ounce.

Gold Daily Chart

 

Chart prepared by James Stanley; data derived from Tradingview

Fundamentals don’t directly push prices in a true market environment.

In that backdrop, only buying and selling – supply and demand can do that. Now, fundamentals can influence supply and demand but it’s often going to be imperfect, because if anyone willing able or wanting to buy is already long, well even the best news in the world will fail to increase demand, because there’s simply no buyers left on the sidelines. The very deduction of price not moving higher on seemingly good news can instead be reason for longs to sell, which can create weakness and, in turn, more selling, as stops then get hit and longs are further influenced to pare positions even despite the otherwise ‘good news’ that one would expect to have led to increased prices.

A good example of this is what happened back in the summer of 2020.

At the time, the Fed was full pedal to the floor with monetary policy, to the point that stocks were thrusting to fresh all-time-highs even as the global economy remained shut down. This got gold up to its first ever test of the $2k psychological level. The trend at the time was near-parabolic, similar to what’s shown more recently, but that $2k level sent buyers into a tailspin.

At that point, Bitcoin was struggling to get back over the $12k marker and it’s almost as if capital flows shifted from gold and into cryptocurrencies, with gold then going into a range for the next three-and-a-half years, with an obedient hold of resistance right around that $2k/oz level.

That lasted into 2024, at which point gold began to find support on that price and there were just two days in which prices closed below $2k. But, a comment from Chicago Fed President Austan Goolsbee sent gold prices back above the big figure – and they never looked back. That was no almost 100% ago as gold gets closer and closer to the $4k handle.

Gold Weekly Chart

 

Chart prepared by James Stanley; data derived from Tradingview

Gold Near-Term Strategy

At this point the trend in gold is difficult to chase. But it’s also impossible to ignore. As I’ve been saying for months, I have little interest in the short side of gold, even if a pullback does show up. To get bearish on gold, I’ll need to see a convincing argument that the trend is ready to show anything more than a pullback, and to date, that argument hasn’t presented itself.

Instead, the $4k level may serve in a role like $3500, or perhaps even $2k. And if we look at the bull pennant that set up last year, I think the argument could even be made that it was anticipation of the $3k/oz level that helped to dissuade bulls from chasing the move in November and December.

So, for now, the look is on pullbacks to support and if we do get a bearish sequence on the daily before a test of the $4k handle, then perhaps the door opens to a larger pullback that could bring into play a support test at $3500, which notably still hasn’t happened yet.

On a short-term basis, there’s support potential at $3871 and $3854, after which $3831 comes into play. I’m looking at the $3791-$3800 zone as a significant decision point, and if bears can break through that, the door opens for that larger pullback scenario. I would still hesitate to get into a bearish stance, and, instead, would simply look for a larger pullback towards prior zones around $3738-$3759 or around the $3700 level.

Gold Four-Hour Chart

 

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist