Gold outlook: Precious metal edges closer to May ATH

Thanks largely to weakness in economic data, and falling inflationary pressures, bond yields are continuing to remain under pressure. This is helping to boost the appeal of low- and zero-yielding assets, and thereby keeping the gold outlook positive. Gold has now extended its weekly gains to 4, while Bitcoin has also shown signs of resilience again. Both assets are now close to their all-time highs. The yellow precious metal was just over $7 shy of breaking its May high of $2450 at the time of writing. The underlying trend is clearly bullish with the metal already achieving three consecutive weeks of positive closes. This persistent performance positions gold to potentially conclude its sixth straight month of gains and achieve a new record while at it. Over the past ten months, gold has experienced only one decline—a modest 1.1% drop in January—making dip-buying strategies more effective than shorting gold.

Gold supported by falling yields as focus turns to retail sales

There is no doubt that the recent surge in gold prices can be at least partially attributed to a declining dollar and falling bond yields, thanks to weaker-than-expected US data and an unexpected drop to 3% in US consumer inflation last week. These factors have enhanced the attractiveness of assets with low or no interest returns. Alongside gold, the Japanese yen rebounded last week, causing the Dollar Index to drop for the second consecutive week. In Japan, interest rates are near zero, which along with concerns over the nation’s huge debt pile is why the yen has been battered in recent times.

The US dollar will be in focus again when retail sales data is published later on today. If we see surprisingly weak data, then this should boost the gold outlook marginally as the odds of a September rate cut gets bigger. Conversely, a strong set of retail sales figures could give the dollar at least a short-term boost and thus undermine the buck-denominated precious metal. Headline sales are seen falling 0.3% m/m while core sales are expected to have risen 0.1% in June.

I reckon that any weakness gold may experience from this source is likely to be short lived, given the strength of the ongoing bullish trend. Indeed, the metal has shown resilience against dollar strength at various points throughout this year, indicating that investors view gold as more than just a foreign exchange product. Its appeal lies in wealth preservation, particularly as years of high inflation has significantly diminished the purchasing power of fiat currencies across the globe. Thus, gold continues to attract interest for its value retention capabilities.

Gold outlook: Technical analysis

Source: TradingView.com

As the gold is trading just a spitting distance away from its record highs, there is nothing bearish about the gold chart right now. Not when gold has only just exited a bull flag pattern to the upside. That happened at the end of June, leading to subsequent technical buying in the first half of July. Consequently, gold has surpassed several resistance levels such as $2,340, $2,390 and now $2,420, with the latter now serving as a critical short-term support to watch.

On the upside, the May’s high of $2,450 is the next obvious target, followed by Fibonacci extension levels against the May high at approximately $2,495 (127.2%) and $2,550 (161.8%).

In a nutshell

Our gold outlook remains positive. The metal’s performance has been bolstered by a weaker dollar and reduced bond yields. Its strong gains in 2024 have reinforced its status as a reliable asset for wealth preservation amidst rising prices. The charts agree: technical indicators suggest continued bullish momentum, making bullish trades favourable over bearish ones with the potential to reach new record highs soon.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R