Spot Gold (XAUUSD) is edging lower early Monday after posting a strong rally last week. The market is currently testing the 52-week moving average at $4,349.82. Trader reaction to this indicator will likely set the tone for the week.
Last week’s rally was impressive and it may not have been a one-time event. A number of factors contributed to the rise, with the key being a solid support base across a long-term 50% level at $4,069.54. Additionally, it may have taken a while, but the base began building after a closing price reversal bottom at $3,942.10.
Traders will be watching the 52-week moving average this week because it can be both solid resistance or a potential trigger point for an acceleration to the upside.
If traders decide to sell into it, we could see a near-term pullback into the long-term 50% level at $4,069.54. Buyers could return on a pullback to this level, while defending against a breakdown under $3,942.10.
A breakout over the 52-week MA will indicate that the buying is getting stronger. The first target will be $4,481.78. This is an unusual target because it represents 20% down from the all-time high at $5,602.23. In other words, it’s the level that according to conventional analysis, turned the bull market into a bear market.
Overcoming $4,481.78 will indicate the buying is getting stronger. If this creates enough upside momentum then look for a surge into the retracement zone at $4,772.17 to $4,968.06. This is 50% to 61.8% of the break from $5,602.23 to $3,942.10.
Longer-term traders should keep an eye on the 52-week moving average this week.
Weekly Forecast
Last week’s rally ran on one trade. Payrolls contracted, hike odds dropped and gold repriced the rate path in five sessions. CPI Wednesday and PPI Thursday decide whether that repricing holds or gets walked back.
A soft pair of inflation reports and gold has the momentum to clear the 52-week moving average at $4,349.82 and target the bear market threshold at $4,481.78. A hot CPI sends yields and the dollar higher and pulls the bid out from under a metal that just gained 7% on one data point.
Oil back above $79 is the complication. If crude keeps climbing on stalled Hormuz talks, inflation expectations rebuild and the Fed’s case for September gets harder to dismiss. Gold needs lower oil, lower yields and inflation data that cooperates. It got the first two last week. This week it finds out about the third.
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