Gold – Has The Summer Rally Already Begun?

After the sharp drop in the first half of June and a tenacious sideways bottoming out, the gold price recovered to US$1,834 and thus reached its 200-day moving average (US$ 1,827) again. Gold – Has the summer rally already begun?

Review

Since gold prices reached a new all-time high at US$2,075 on August 7th, 2020, the entire precious metal sector has been in a multi-month correction. After eight months within this correction, gold fell back to an important double low at around US$1,676 in mid and late March. From there, prices recovered strongly in April and May. This wave up ended at US$1,916 (+14.3% in eight and a half weeks). Subsequently, gold prices came under strong selling pressure once again. A quick and steep sell off took prices down by US$142 within just one week between June 11th and 18th. But it was not until June 29th that the gold market finally found its turning point at US$1,750. From here, an initially tenacious but step by step more dynamic recovery towards US$1,834 began. Over the last few days, gold slipped back below US$1,800 only to recover quickly back to US$1,815.

While central bankers, politicians, and the media have been talking down the increasing fears of inflation (US consumer price index +5.4% in June), gold was only able to recover slowly from the severe pullback in June. Nevertheless, gold current trades about US$65 higher than at its low point a three weeks ago. Is this the end of the typical early summer correction in the precious metals sector or is there still some more downside to come?

Technical Analysis: Gold in US-Dollar

Weekly Chart – The series of higher lows remains intact

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Gold in US-Dollars, weekly chart as of July 20th, 2021. Source: Tradingview. Gold - Has the summer rally already begun?

Gold in US-Dollars, weekly chart as of July 20th, 2021. Source: Tradingview

On the weekly chart, gold has been moving higher within a clearly defined uptrend channel (dark green) since autumn 2018. The lower edge of this trend channel was tested in April 2019. The sharp pullback in June, on the other hand, has so far ended at US$1,750 and thus at the connecting line (light green) of the last three higher lows. At the same time, the upper edge of the former downward trend channel (red) was successfully tested for support.

If the correction is now over, gold could already be on the way to its upper Bollinger Band (US$1,911). In any case, the stochastic has turned upwards again and thus provides a new buy signal.

Overall, the weekly chart is not (yet) convincing, but the bullish tendencies prevail. To confirm the uptrend, a higher high is needed in the next step, which would require gold prices above US$1,916. Until then, however, the bulls still have a lot of work to do. If, on the other hand, the low at US$1,750 is being taken out, another retracement towards the lower edge of the uptrend channel at around US$1,670 to US$1,700 is very likely.

Daily Chart – Around the falling 200-day moving average

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Gold in US-Dollars, daily chart as of July 20th, 2021. Source: Tradingview. Gold - Has the summer rally already begun?

Gold in US-Dollars, daily chart as of July 20th, 2021. Source: Tradingview

On the daily chart, gold had good support at the cross of a downtrend and an uptrend line. Starting from that zone and the low at US$1,750, gold did  already recover slightly above the still falling 200-day moving average (US$1,824). However, as the stochastic oscillator has already moved into the overbought zone and created a new sell signal. As well, the upper Bollinger Band (US$ 1,831) is blocking the bulls. Hence, a consolidation around the 200-day moving average would be a highly conceivable scenario.

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Analysis initially written on July 15th and published on July 19th, 2021, by  more

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Adam Reynolds 1 month ago Member's comment

Don't think so.