Introduction
Gold futures (GC) continue to consolidate within a symmetrical triangle formation. This comes after a strong 27% rally in the yellow metal in 2024, so it is normal for the market to experience a period of cooling. Let’s see what the technicals tell us here.
Technical Analysis
Symmetrical Triangle Formation
- Price is currently consolidating within a symmetrical triangle. This pattern often precedes a breakout.
- Key breakout levels:
- Upside breakout: Above $2,750.0 (R1)
- Downside breakout: Below $2,600(S1)
Moving Average Support
- The 50-day SMA ($2,670.5) is capping immediate upside momentum, while the 200-day SMA ($2,505) provides a solid base for longer-term support.
- Gold’s position above the 200-day SMA underscores the ongoing bullish bias.
Gold’s Divergence from Equities
- While equity markets continue to rally, gold’s stability highlights its role as a hedge against potential risks, including inflationary pressures, geopolitical tensions, and central bank policy shifts.
Why is Gold Rallying Alongside Equities?
Gold’s strength amid rising equity markets may seem counterintuitive but can be explained by a few key factors:
- Hedge Against Future Risks: Despite the bullish sentiment in stocks, investors are maintaining positions in gold as a safeguard against volatility, policy shifts, and geopolitical tensions.
- Central Bank Demand: Central banks have continued to increase their gold reserves, providing a steady tailwind for the metal.
- Inflationary Concerns: Even as equities rally, inflation remains a concern, keeping gold’s appeal intact as a store of value.
- Weakened Dollar Momentum: The dollar has shown signs of consolidating after its recent rally, which supports gold prices by making it more attractive to foreign buyers.
Bullish Case: Upside Breakout
- Key Levels to Watch:
- Immediate resistance at $2,670.5 (P).
- A breakout above this level would target $2,736.0 (R1) and eventually $2,830.9 (R2), aligning with the triangle’s measured move.
- Catalysts for Upside:
- Renewed safe-haven demand or weaker dollar performance could propel gold higher.
Trade Ideas
Breakout Trade – Symmetrical Triangle
- Upside Entry: On a break above $2,750.
- Target 1: $2,830.0 (R2).
- Target 2: $2,900. (R3).
- Stop Loss: Below $2,600.0.
- Downside Entry: On a break below $2,542.5.
- Target 1: $2,505.0 (S2).
- Target 2: $2,406.8 (S3).
- Stop Loss: Above $2,560.0.
Outlook & Summary
- Short-term (1-2 weeks): Consolidation within the symmetrical triangle is expected to continue, with the potential for a breakout as volatility builds.
- Medium-term (1-3 months): A sustained break above $2,750 could set the stage for a rally toward $2,830.9, while a failure to hold $2,542.5 may see gold test deeper support.
- Long-term (3+ months): As long as gold holds above the 200-day SMA, the long-term bullish outlook remains intact.
