Is Gold's Breakout Sustainable?
Gold has surged to record highs, breaking past the $2,500 mark for the first time in history. But with mixed signals from the market, the question remains: Can this rally hold its ground?
Why Is Gold Rallying?
Gold's recent rally is fuelled by a mix of macroeconomic factors and geopolitical tensions that have driven investors toward the safe-haven asset. The U.S. Federal Reserve's anticipated rate cuts, spurred by softer inflation data and a cooling economy, have weakened the dollar, making gold more attractive to investors. Additionally, ongoing geopolitical uncertainties, such as tensions in the Middle East and the war in Ukraine, have further bolstered demand for gold as a hedge against risk.
Strong retail sales data in the U.S. and a drop in bond yields have increased the allure of gold, particularly as investors weigh the likelihood of multiple rate cuts by the Fed by the end of the year. This optimistic sentiment has pushed gold over 20% higher this year, culminating in Friday's historic breakout.
Technical Analysis: The Breakout and Its Sustainability
The technical landscape of gold's recent breakout presents both bullish signals and reasons for caution.
Daily Candle Chart Analysis
Prior to Friday's breakout, gold had been consolidating within a broad range since April, oscillating around its 50-day moving average. The fact that the market has consistently traded above its 200-day moving average since the start of the year underscores a long-term bullish trend. Friday's close near intra-day and weekly highs is a strong bullish indicator, supported by a rising RSI that shows no signs of being overbought. These factors suggest that the breakout could have more room to run.
However, one concerning aspect is that the breakout was not accompanied by a significant increase in trading volume, a key element that often underpins the sustainability of such moves. Without strong volume to back the breakout, there’s a risk that it could falter.
Gold (XAUUSD) Daily Candle Chart
Past performance is not a reliable indicator of future results
Hourly Candle Chart Analysis
Drilling down to the detail of the hourly chart reveals additional complexities. The volume profile during Friday's breakout, while broad, showed the point of control (POC)—the price level with the highest trading volume—was near the lows of the day. This suggests that much of the trading interest was at lower levels, which could indicate weaker conviction at higher prices.
Furthermore, the accumulation of daily POCs below the breakout level has created a high-volume zone that may act as a support base if prices retreat. However, for the breakout to be truly sustainable, the market needs to attract fresh buyers above the $2,500 level. Without this influx of new buying interest, the breakout risks losing momentum and potentially slipping back into the previous range.
Gold (XAUUSD) Hourly Candle Chart
Past performance is not a reliable indicator of future results
Conclusion: Can Gold Hold Its Ground?
Gold's breakout to new highs is supported by strong macroeconomic fundamentals and a favourable technical setup, particularly on the daily chart. However, the volume structure, especially on the hourly chart, raises some red flags. The lack of increased volume and the concentration of trading at lower levels suggest that the market may need to prove its strength by drawing in new buyers above the breakout level. As such, while the rally has the potential to continue, cautious optimism is warranted as we watch for further signs of strength or weakness in the days ahead.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.51% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Why Is Gold Rallying?
Gold's recent rally is fuelled by a mix of macroeconomic factors and geopolitical tensions that have driven investors toward the safe-haven asset. The U.S. Federal Reserve's anticipated rate cuts, spurred by softer inflation data and a cooling economy, have weakened the dollar, making gold more attractive to investors. Additionally, ongoing geopolitical uncertainties, such as tensions in the Middle East and the war in Ukraine, have further bolstered demand for gold as a hedge against risk.
Strong retail sales data in the U.S. and a drop in bond yields have increased the allure of gold, particularly as investors weigh the likelihood of multiple rate cuts by the Fed by the end of the year. This optimistic sentiment has pushed gold over 20% higher this year, culminating in Friday's historic breakout.
Technical Analysis: The Breakout and Its Sustainability
The technical landscape of gold's recent breakout presents both bullish signals and reasons for caution.
Daily Candle Chart Analysis
Prior to Friday's breakout, gold had been consolidating within a broad range since April, oscillating around its 50-day moving average. The fact that the market has consistently traded above its 200-day moving average since the start of the year underscores a long-term bullish trend. Friday's close near intra-day and weekly highs is a strong bullish indicator, supported by a rising RSI that shows no signs of being overbought. These factors suggest that the breakout could have more room to run.
However, one concerning aspect is that the breakout was not accompanied by a significant increase in trading volume, a key element that often underpins the sustainability of such moves. Without strong volume to back the breakout, there’s a risk that it could falter.
Gold (XAUUSD) Daily Candle Chart
Past performance is not a reliable indicator of future results
Hourly Candle Chart Analysis
Drilling down to the detail of the hourly chart reveals additional complexities. The volume profile during Friday's breakout, while broad, showed the point of control (POC)—the price level with the highest trading volume—was near the lows of the day. This suggests that much of the trading interest was at lower levels, which could indicate weaker conviction at higher prices.
Furthermore, the accumulation of daily POCs below the breakout level has created a high-volume zone that may act as a support base if prices retreat. However, for the breakout to be truly sustainable, the market needs to attract fresh buyers above the $2,500 level. Without this influx of new buying interest, the breakout risks losing momentum and potentially slipping back into the previous range.
Gold (XAUUSD) Hourly Candle Chart
Past performance is not a reliable indicator of future results
Conclusion: Can Gold Hold Its Ground?
Gold's breakout to new highs is supported by strong macroeconomic fundamentals and a favourable technical setup, particularly on the daily chart. However, the volume structure, especially on the hourly chart, raises some red flags. The lack of increased volume and the concentration of trading at lower levels suggest that the market may need to prove its strength by drawing in new buyers above the breakout level. As such, while the rally has the potential to continue, cautious optimism is warranted as we watch for further signs of strength or weakness in the days ahead.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83.51% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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