A Possible Technical Upside Breakout Confirms the Renewed Bullish Gold Sentiment

Investors Anticipate Extension of Federal Reserve’s Rate Hike Pause Amid Positive Inflationary Outlook

Last month after 10 consecutive rate hikes at each FOMC meeting the Federal Reserve left their benchmark interest rate between 5% and 5 ¼%. Statements by Chairman Powell along with multiple Federal Reserve members underscored that this was not a signal that the Federal Reserve would mark this occasion as the beginning of a more accommodative monetary policy. Rather their remarks suggested that the pause was initiated so that the Federal Reserve could assess the effect that their 10 consecutive rate hikes have had on reducing inflation.

Recent data suggests that the Fed’s action has done just that after two reports confirmed that the growth of inflation has been curtailed. Both the CPI (Consumer Price Index) which was released last week and the PPI (Producer Price Index) just released have indicated that inflationary pressures are weakening with both reports coming in below expectations.

Last week’s CPI index report for June was believed to be a potential inflection point for the Federal Reserve confirming that their aggressive monetary policy has taken effect and dramatically contracted the economy.

According to MarketWatch, “Data Tuesday showing weaker U.S. retail sales and industrial production data further fueled expectations for an end to the Fed’s rate-hiking cycle, causing Treasury yields to fall, which in turn “helped to support low- and zero-yielding assets, like gold and silver,” Razaqzada said in a market update.”

Technical Gains Last Wednesday and Today Yields Renewed Bullish Sentiment

Today gold futures opened at $1958.30 just below its 100-day moving average which is currently fixed at $1960.90. Market participants continue to move the precious yellow metal higher through its 50-day moving average at $1966.30. The breakout above both the 50 and 100-day moving averages sparked a significant rally moving gold substantially higher. As of 4:55 PM EDT, the August contract is currently fixed at $1982.60, after trading to a high of $1988.30 and then backing off slightly. This is a significant move in that gold gained $26 on the day after breaking through former resistance that resides at those key technical levels (50 and 100-day moving averages). Furthermore, gold futures closed just above the 38.2% Fibonacci retracement which is fixed at $1978.30. The data set used for the Fibonacci retracement begins at $1910 and concludes at $2083 per ounce.

This puts the next level of resistance at $2000 per ounce. This is based on a top created on June 5 when gold prices reached that key psychological level before correcting down to $1900 per ounce on June 29. Above that price point, major resistance occurs at the 23.6% Fibonacci retracement at $2020 per ounce.

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Wishing you as always good trading,

Gary S. Wagner