Gold Rally Takes Another Big Step Forward as FOMO Fuels the Run

Gold Talking Points:

• The five weeks of support at the $4k handle have led to a tonality shift, with gold bulls taking a gigantic step forward over the past three weeks.
• While early-week action saw profit taking last week, a major breakout developed on the announcement of larger US Treasury buybacks, and that’s something that could keep the topside of gold running-higher.

The fear of missing out seemed to hit gold markets particularly hard in late-week trade, following the announcement of larger US Treasury buybacks last week. While that announcement came as a surprise, the willingness of US authorities to push the envelope to keep the debt-fueled AI boom going should not, and this has been a big part of the gold backdrop for the past two and a half years.

It was February of 2024 when gold finally broke above the $2k level, fueled by Chicago Fed President Austan Goolsbee seemingly dismissing above-target inflation to, instead, highlight rate cut potential later in the year.

Since then, we’ve had 175 bps of softening and not once has headline or Core CPI printed below the Fed’s 2% target on an annualized basis, and the same goes for Core PCE which is supposed to be the Fed’s preferred inflation gauge.

While this doesn’t necessarily show prominently in the Forex market, it does show in markets prices against fiat currencies, such as Bitcoin, or gold. And gold was flying all the way into the start of this year when the inflation issue started to rear its ugly head again.

The June FOMC rate decision was perhaps surprising to some, as Trump’s hand picked success for Fed chair took on a hawkish tone regarding inflation. The Dollar rallied, rate hike odds perked up and gold finally tested below the $4k level that had been teased multiple times in the prior few months.

But that’s where the proverbial music stopped for sellers as there was six consecutive weeks where price flirted with that psychological level without a single weekly close below it. And then ahead of the Fed meeting in late-July, there were initial signs of bullish anticipation, highlighted by higher-lows. And then the week after the Fed, a massive breakout took hold and from the weekly chart it’s clear that buyers have been getting more and more comfortable in the driver’s seat.

Gold Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Strategy

Gold is now overbought on the daily chart and that makes the prospect of chasing the move higher more challenging. There is, however, an ideal spot to track for support on pullback scenarios and depending on how aggressively one wanted to look for that, either the 4500-4524 zone or the 4435-4450 zone could be monitored for bullish continuation.

Gold Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Structure

The four-hour chart highlights well the recent bullish structure, with the two aforementioned zones standing out as key spots for bullish defense. But given that we’re now overbought it would be logical to entertain a wider pullback scenario, and it’s the same prior resistance around 4380 that stands out for that.

For invalidation, the 4305 level is of interest and if bulls fail to hold a test above that level then it will begin to look as though the rally has failed.

Gold Four-Hour Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro