The price of gold continued to appreciate recently, recording a new all-time high on Jul 16 when it traded above the previous high of US$2,450 per ounce level recorded in May this year. The precious metal’s recent advance was fuelled by increased optimism that the Federal Reserve will begin cutting rates from September following its dovish commentary and soft inflation readings.
The US Consumer Price Index for June came in at 3 per cent which was slightly below the 3.1 per cent estimate. In addition, Fed chairman Jerome Powell mentioned that the central bank will not wait until inflation hits 2 per cent to cut rates. Instead, the Fed is looking for “greater confidence” that inflation will return to the 2 per cent level. As a result, traders were widely positioning for a September rate cut, pricing in over a 90 per cent probability for a 25 basis-point reduction, which benefits non-interest-bearing gold.
From a technical perspective, gold has shown promising signs of scaling greater heights. It has broken out of a three month-long range consolidation from US$2,300 to US$2,435 per ounce since mid-April this year. There was also bullish price action before the breakout, with the price recovering above the US$2,370 per ounce resistance level at the start of July and making higher lows. This indicates that gold buyers are prepared to resume the longer-term uptrend.
In addition, the Moving Average Converge Divergence (MACD) technical indicator recently recovered above the zero line, suggesting a shift in momentum towards the bulls. The previous instance where the MACD displayed this signal was in early March this year, which also saw gold breaking out of a consolidation and embarking on a strong rally from US$2,050 per ounce to above US$2,400 per ounce.
Moving forward, gold is expected to scale new heights following its recent range consolidation breakout. The precious metal will likely rally towards the projected target level of US$2,570 per ounce.
The writer is research analyst at Phillip Securities Research
