Gold: After A Grey June, Could The Metal Shine In July?

brass metal frame

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Gold edged higher last week to close flat on the month. The dollar Index registered a small gain on the month, suggesting gold investors again ignored the dollar’s strength. The metal traded in a rather narrow $100 range throughout June, with a high of just over $2387 and low of just below $2287. This was the first time since February that the metal didn’t achieve any fresh record highs at any point during the month, after hitting repeated all-time highs in March, April, and May. The consolidation meant the rally stalled, although we didn’t see the formation of any major reversal patterns to worry the bulls. After a quieter period in June, we could see the resumption of the bullish trend this month.

Gold again shrugs off dollar strength

As mentioned, the US dollar remained largely supported, especially against currencies where the central bank is more dovish than the Fed – most notably against the likes of the Japanese yen and Chinese yuan. Yet, gold investors were happy to shrug off the FX moves and so gold recovered from a weaker start last week to finish in the positive. The fact that the metal continues to ignore the dollar strength goes to show investors don’t see gold as an FX product; they remain focused on the metal’s appeal for wealth protection against rising prices, after several years of above-forecast inflation eroded the purchase power of fiat currencies, in some cases significantly.

US NFP and CPI among key data highlights for dollar, gold

Friday’s latest inflation data (core PCE price index) was bang in line with expectations. More key US economic data is to come in the next couple of weeks, with the June non-farm jobs report due on Friday, followed by the CPI on July 11. It is also worth keeping an eye on this week’s other important data releases, such as the ISM manufacturing and services PMIs, ADP private payrolls, JOLTS Job Openings, and FOMC minutes. Given how the metal has been able to hold its own despite the dollar remaining largely supported, it is therefore not unreasonable to expect gold to potentially rally to a new record high if the greenback were to weaken now. So, watch the upcoming data releases closely. Any further signs of a weakening US economy should help to increase expectations over more than one rate cut in 2024.

Gold trade ideas and technical analysis

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The trend on gold chart is still bullish on the higher time frames. The higher highs and higher lows we have seen in recent months remain intact, although there are some concerns about the recent loss of bullish momentum. However, the consolidation phase has allowed the Relative Strength Index (RSI) to alleviate its 'overbought' conditions across multiple time frames, including the weekly and monthly charts. This has been achieved primarily through time rather than price action, which is generally a bullish sign.

This means that the potential head and shoulders formation observed on the daily time frame could be a bear trap and may not necessarily break down the pattern’s neckline around the crucial $2300 support area. In fact, it could be argued that gold is consolidating within a bull flag continuation pattern, and recent movements suggest a potential breakout. Bears will need to exert significant pressure to shift the trend in their favor.

Gold prices now need to move decisively above short-term resistance at $2325. The next potential resistance comes in around $2365. A move above this level would strongly indicate that the bull trend has resumed.

Conversely, if the $2300 support level breaks decisively, we could expect some follow-through selling towards the next potential support at $2222. However, this is not my base case scenario.

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