Gold – Summer rally and power showdown in August
After the expected turning point in late June, gold managed to stage a first recovery towards USD 1,987. Over the last two weeks however, prices came back down significantly. After a weaker than expected non-farm payroll report on Friday, gold posted a clear intraday reversal. Closing the week above the critical support at around USD 1,930 was very important. Gold – Summer rally and power showdown in August.
Five weeks ago, we wrote that there was still no clear trend reversal in the gold market. Indeed, the expected low point of the seven-week correction wave was reached just a few days later at UD 1,893. Following this turning point, however, gold only showed hesitant signs of a recovery initially. It was not until July 12th that a clear breakout above USD 1,935 also led to a jump back into higher levels. Looking back, there has been an initial rally from USD 1,893 to USD 1,987 (+94 USD or +4.96%) within three weeks.
Nevertheless, since July 20th, this first wave up has been undergoing a significant correction and gold prices have now fallen back to USD 1,925 USD. So far, the movement of the last two weeks “only” appears to be a minor countertrend-movement. The new uptrend since the end of June is still intact. Hence, the outlook for the coming weeks remains positive, despite the deep but expected pullback.
Of course, unrest and concerns among goldbugs have noticeably increased in recent days. However, it is worth noting that silver had shown a surprisingly strong performance, as the trend reversal occurred on June 23rd already, which was six days before the gold price. A rapid surge followed, reaching as high as USD 25.26 (+14.36%). This first leg higher has now been corrected as expected towards our target zone between USD 23 and USD 24 with a pullback to USD 23,23.
On the other hand, mining stocks continue to lag behind precious metal prices in the broader context. Although the GDX has increased by 14.48% since its low on June 29th, industry giants Newmont Corporation and Barrick Gold have yet to gain momentum. Many of the smaller junior producers and especially explorer stocks have been languishing around their lows for weeks and are currently experiencing new lows in some cases.
On a year-to-date basis, Bitcoin (+76%) and DAX in USD terms (+18%) are still clearly ahead.
Chart Analysis – Gold in US-Dollar
Weekly chart: Once again, a tricky consolidation between USD 1,930 and USD 1,980
Reaching its final low at USD 1,893 on June 29th, the seven-week long pullback (-8.41%) in the gold market marked a precise landing at the 38.2% retracement level of the previous wave up. Between November 3rd, 2022, and May 4th, 2023, this previous wave up had propelled gold prices by 28.86% higher. Accordingly, the retracement down to USD 1,893 fulfilled the minimum correction target. The fact that gold has not corrected deeper thus far is a sign of strength.
Starting from the low point at USD 1,893, gold prices quickly gained almost 5%, reaching a peak at USD 1,987. This initial recovery wave was accompanied by a very healthy buy signal from the weekly Stochastic indicator. The oscillator now would have ample room to move higher, indicating the possibility of a multi-week or even multi-month rally. However, a weekly closing price above USD 1,950 would be necessary in the short term to avoid losing this new buy signal. A directional decision for August is likely to come during the next trading week already.
Overall, the weekly chart appears slightly bullish and is almost ideally positioned for the summer rally which we anticipate. The first price target on the weekly chart would be the upper Bollinger Band (USD 2,023), followed by the crucial resistance zone between USD 2,050 and USD 2,080. Conversely, if there is a clear weekly closing price below USD 1,920, the bullish scenario would have to be neglected. In that case, gold would likely resume its correction from May and June, heading towards USD 1,900 and potentially lower.
Daily chart: Oversold stochastic oscillator now ideally positioned for the summer rally.
On the daily chart, the anticipated trend reversal took place in the last week of June. Following the first leg higher of the summer rally, the temporarily overbought situation has now been completely worked off with a significant and volatile pullback down to USD 1,925. Until last Wednesday, gold prices managed to hold above its 50-day moving average (USD 1,945) at least. But with the slide below USD 1,940, the next crucial support now is the lower daily Bollinger Band (USD 1,925). Due to the substantial pullback, the daily stochastic oscillator had become very oversold, making the remaining downside risk very limited. And with Friday´s reversal, the stochastic oscillator is turning up again issuing a brand-new buy-signal.
In summary, the daily chart has become extremely oversold, making it slightly bullish in a contrarian manner. At least a recovery or bounce towards approx. USD 1,955 would be overdue. If the bulls manage to reverse the trend and rally back towards USD 1,985 the picture would improve dramatically. Most importantly, this level coincides with the neckline of an inverse head and shoulders formation, which, upon a successful breakout, could swiftly propel gold prices towards USD 2,080!
On the downside, however, short-term leeway should be granted towards the lower Bollinger Band (USD 1,925). Below that level, however, the potential summer rally would increasingly be at risk.
Commitments of Traders for Gold – Slightly bearish
According to the latest CoT (Commitments of Traders) report, based on data from July 25th, commercial traders held a cumulative net-short position of 198,210 future contracts on the COMEX gold price. In a long-term comparison, this level of short position is too high and certainly does not provide a contrarian opportunity at this stage.
However, examining the CoT data of the past ten years also reveals that such a contrarian opportunity does not occur every year but rather every three to four years. The last occurrence was in the autumn of 2022, preceded by the summer of 2018. Hence, the probability is relatively low that the commercials will achieve a brutal sell-off this year to significantly reduce their high short position or even switch to a long position.
In total, the current CoT report is bearish. The outlook would only turn bullish once the cumulative net-short position drops below 100,000 contracts.
Sentiment for Gold – Neutral
Sentiment for gold currently neither shows any signs of high optimism and greed nor of fear and panic. The last panic low was observed in the autumn of 2022, and we suspect that sentiment has been on its way to the opposite extreme (excessive optimism and greed) since then. Neutral intermediate phases, like the ones observed in recent months, are entirely normal. However, during such neutral phases, the usefulness of sentiment analysis is limited.
Overall, sentiment remains neutral.
Seasonality for Gold – Summer rally and power showdown in August
Since the beginning of July, the statistically best phase of the year for the gold price has commenced. Over the last 54 years, significant price increases have been observed in the gold market, particularly in August and September.
So far, this year’s gold price appears to be adhering to its seasonal pattern, as the bulls have regained control since the end of June.
In summary, seasonality is extremely bullish until early October. Specifically, the months of August and September often deliver strong price surges.
Macro update – Downgrading just a few weeks before the BRICs conference.
“Gold – Summer rally and power showdown in August” – analysis initially published on August 3rd, 2023, by www.celticgold.de. Translated into English and partially updated on August 5th, 2023.
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This article and the content are for informational purposes only and do not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. The views, thoughts and opinions expressed here are the author’s alone. They do not necessarily reflect or represent the views and opinions of Midas Touch Consulting.