Gold outlook: Metal could hit a new record high

Gold turned positive on the session after a quiet start, testing short-term resistance around $2420 at the time of writing. The precious metal managed to post a hattrick of positive weekly closes despite ending a touch lower on the session on Friday. This means that gold is still on track to potentially end higher for the sixth consecutive month. In fact, in the last 10 months, gold has only closed lower once – and that was a mere 1.1% drop in January. The trend is therefore quite strong, which provides no reason for us to change our current bullish gold outlook.

Why did gold rally last week?

Last week’s gains came as the dollar and bond yields fell, boosting the appeal of low- and non-interest-bearing assets. As well as gold, even the Japanese yen managed to rebound. The common denominator behind all these moves were data showing waning inflationary pressures. Headline CPI unexpectedly fell 0.1% month-on-month in June, pushing the year-over-year rate down to 3.0% from 3.3% in May. Core CPI was weaker than expected, while the forward-looking UoM’s Inflation Expectations for July – which captures the percentage that consumers expect the price of goods and services to change during the next 12 months – fell to 2.9% form a downwardly revised 3.0% in June. However, PPI was stronger on both headline and core fronts, which is probably why gold couldn’t post a positive close on Friday.

Gold outlook remains positive

The gold outlook remains positive after the metal paused for a breather in June when it only posted a small gain. June marked the first month since February without any new record highs for gold, following a series of all-time highs in March, April, and May. But as no significant reversal patterns emerged during that month to concern bullish investors, the metal is well in the positive territory at the half-way point of July. Can the bullish momentum continue as we head deeper into the summer months (for northern hemisphere)?

Even if the US dollar were to rebound, this alone probably won’t be enough to halt the gold rally. After all, the metal has continually ignored the dollar's strength at various points this year, suggesting that investors do not view gold as merely an FX product; instead, they are focused on its appeal for wealth protection against rising prices. After several years of inflation exceeding forecasts and significantly eroding the purchasing power of fiat currencies, gold remains attractive for its value preservation.

Gold outlook: technical analysis levels to watch

The gold chart still looks bullish on multiple time frames. Therefore, it makes more sense to continue looking for bullish than bearish setups when it comes to trading the XAUUSD.

On the weekly chart, one can observe a breakout from a triangle continuation pattern to the upside following a multi-week consolidation. This breakout suggests that the long-term bullish trend is about to resume, with the bulls eying liquidity that would be resting above May’s all-time high at $2450, next.

On the daily time frame, gold broke out of a bull flag pattern to the upside at the end of June, which has unambiguously led to some follow-up technical buying at the first half of this month. More recently, gold broke above resistance around the $2380-$2390 area (grey shaded area on chart). This zone is now the most important short-term support to watch. For as long as gold can hold above here, the short-term path of least resistance would remain to the upside.

Short-term resistance is seen around $2420, marking a potential right shoulder area. Above here, May’s high at $2450 is the next upside objective, followed by the Fibonacci extension levels against the May high, at ~$2495 (127.2%) and $2550 (161.8%).

Source for all charts used in this article: TradingView.com

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R