Gold Fresh All-Time-High After ECB: A Long Way from Last Year's Deep Oversold

Gold Talking Points:

• It’s been an incredible move in Gold going back to last year. It was almost a year ago that Gold had moved to ‘deep oversold’ levels, as I had noted in these articles. It was the response to that which got bulls in the driver’s seat where they’ve largely remained over the past year.
• Gold is up by more than 41% since then.
• The FOMC rate decision on November 1^st was telling as this is when it started to sound like the Fed was more confident that rate hikes were finished, and the next move would be a cut. That propelled gold prices to a fresh all-time-high in December, followed by a pullback to and hold of support at 2k through the 2024 open. Another strong breakout appeared in March, helped along by a similarly-dovish FOMC and since then, pullbacks have been relatively minor.
• I’ll be looking into these setups in the Tuesday webinar and you’re welcome to join, click here for registration information.

Spot Gold prices have gained as much as 41.13% from last October’s low…

That’s an incredible stretch for any market but considering the historical scope of Gold it’s all that more impressive. As Gold limped into last October ‘deep oversold’ readings had started to show, with RSI pushing below the 20-level on the daily chart. That’s somewhat rare; so rare that I wrote an article about it to highlight the exceptional nature of the backdrop at the time.

Quite a bit has happened since then but perhaps one of the more meaningful items for the yellow metal is the Federal Reserve priming the backdrop for eventual rate cuts, which are expected to begin at next week’s rate decision on Wednesday. As the European Central Bank cut rates earlier this morning, another breakout has shown in Gold and prices are now trading at another fresh all-time-high.

Gold Weekly Price Chart

Gold Strategy

Perhaps the more amazing aspect of the run over the past year is just how shallow retracements have remained. And of course, FOMC posture has had a sway on the matter.

It was the November 1^st rate decision last year at which Jerome Powell sounded more confident that the Fed had a handle on inflation, and that more rate hikes wouldn’t be necessary. This also heavily implied that the bank’s next move would be a rate cut, and accordingly, stocks caught a strong bid. So did Gold, as a bullish breakout showed after the December open to amount to a fresh all-time-high, and the first test above the 2075/2082 level that had held bulls at bay for the prior three-and-a-half years.

It's the pullback from that which I think was the tell: Support began to show at the 2k level that was previously a hindrance for the metal’s advance, and that showed a couple more times after the 2024 open. In March, another rally appeared, and this time, gold didn’t slow down as it pressed all the way above the $2400 level in mid-April.

At that point gold had become quite overbought and, normally, this would lead to some element of profit-taking. Much of the rest of Q2 was accented by a grinding range but, a bullish bias remained as that range showed in an upward-sloping channel. Bulls slowly gained acceptance at the $2300 level, and then the $2400 level and as the door opened into August, began to work on the $2500 level.

Gold Daily Price Chart

It’s been about a month since the initial $2500 test in Gold and since then, bulls have remained quite active. And, again, there’s been a bullish bias to what was otherwise a grinding range as prices mean-reverted until this morning’s breakout, spurred by the ECB rate cut. And now, Gold has pushed all the way up to a minor psychological level at 2550 and that hasn’t seemed to deter bulls yet.

This could be a difficult move to chase, however, as price is already quite far from any recent swing-lows. There is an ideal place for bulls to offer support and that’s from prior range resistance, spanning from the 2527-2532 areas of the chart, which had held multiple inflections, including yesterday morning, before finally giving way.

As for continuation potential, I wouldn’t want to doubt Gold’s ability to continue gaining at this point. There’s been a clear trend in the market since that low last October and since then there’s been only minor pullbacks. Given timing, with the Fed moving closer to rate cuts, it makes sense from a fundamental perspective. And the fact that the European Central Bank is also cutting rates further speaks to the monetary dilution scenario in fiat currencies, which can further increase the attractiveness of Gold.

Gold Four-Hour Price Chart

--- written by James Stanley, Senior Strategist