Editor’s note
- Gold has potential to rise further: Breakout from $4,000 to $4,500?
- August could be a month of gains for gold
- A rounding bottom pattern is beginning to form
- A smoothed stochastic indicator confirms this
- Labor market weakness acts as a catalyst
- The $4,000 level is becoming a key point
- Next target: resistance at $4,500
- July inflation data could alter the scenario
- Watch out for bearish patterns that haven’t fully disappeared yet
- Two key support levels to hold
- When would the bearish scenario reactivate?
- No confirmation of a correction yet
- Strategy for the coming week
Gold has potential to rise further: Breakout from $4,000 to $4,500?
The gold price is once again showing attractive bullish momentum following a successful impulsive breakout from the bearish trendline.
This move is particularly significant because gold had previously undergone a rather long accumulation period around the psychological $4,000 level—lasting about two months.
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This breakout indicates that selling pressure is beginning to subside and buyers are regaining control.
Moreover, in terms of probability, the likelihood of gold rising further appears greater than the chance of a further decline.
A noteworthy statistic indicates that the probability of a further decline is only about 13%.
August has the potential to be a strong month for gold
Historically, gold’s price action also offers interesting signals. Based on statistics from the past 20 years, August is typically a fairly positive period for gold, especially following the significant decline seen in June.
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This means that, based on seasonal patterns, there is a tendency for gold to have the opportunity to enter a recovery phase in August following the pressure seen in the preceding period.
However, seasonal patterns are by no means a guarantee of price increases. Fundamental factors—such as US monetary policy, inflation, bond yields, and movements in the US dollar—remain the key elements to consider.
A rounding bottom is beginning to form
From a technical perspective, the combination of accumulation around the $4,000 level, a breakout from a downtrend line, and shifting momentum is starting to form a structure resembling a rounding bottom.
This pattern is noteworthy because it differs from previous corrections. Rounding bottoms typically signal a gradual shift in the balance between buyers and sellers.
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Selling pressure subsides while buying interest rises, eventually leading to a price breakout.
Market sentiment, which had previously reached extreme levels, also reinforces the bullish case. When sentiment is extremely negative and then begins to reverse, the market often undergoes a fairly aggressive repricing phase.
Smooth Stochastic offers confirmation
The Smooth Stochastic indicator also provided an interesting signal. A crossover occurred from a level relatively similar to the pattern seen in the previous period.
More importantly, the crossover took place after the indicator had been in oversold territory. This suggests that downward momentum is losing steam and the likelihood of upward momentum is increasing.
A similar pattern observed in the previous period is one reason why this indicator is worth monitoring to see if a strengthening cycle resumes. Weakening labor market becomes a catalyst
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From a fundamental perspective, the state of the US labor market is one of the factors supporting gold.
A weakening labor market could reinforce expectations that pressure on the Fed’s monetary policy will ease.
If the market begins to anticipate looser monetary policy, bond yields and the US dollar could come under pressure.
Theoretically, this creates a more favorable environment for gold.
The combination of weak labor market data, extreme sentiment, and bullish technical signals thus provides a strong foundation for a potential further rise.
The $4,000 level becomes a key point
On the weekly chart, the price reaction at the $4,000 level appears very strong.
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After a period of consolidation and accumulation in that area, gold formed an impulsive bullish candlestick. This indicates that the $4,000 level offers not only psychological support but also serves as a key area for buyers to re-enter the market.
This strengthening subsequently led the price to break through the 10-day exponential moving average (EMA), which had previously acted as dynamic resistance.
Following a successful breakout, the 10-day EMA has the potential to turn into support. As long as the price remains above this level, bullish momentum stays relatively intact.
Next target: resistance at $4,500
If buying momentum persists, the next level to watch is around $4,500.
This level acts as a key resistance point on the weekly chart and could become the next battleground between buyers and sellers.
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In other words, gold’s path from $4,000 to $4,500 will not be an easy climb. Several resistance levels will need to be broken before this target is actually reached.
In addition to the 10-day moving average (EMA), a breakout above the 200-day moving average (EMA) is also a significant development. The 200-day moving average (EMA) previously acted as dynamic resistance; a break above it would further confirm bullish momentum.
July inflation data could change the scenario
While the current technical structure is bullish, one fundamental factor weighs heavily: the July CPI figures—or inflation data.
Inflation figures are crucial because they influence market expectations regarding Fed policy.
If inflation comes in higher than expected, the market might once again anticipate a more restrictive monetary policy. The US dollar and bond yields could rise, potentially putting gold under renewed pressure.
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In this scenario, the gold price could retest the $4,200 zone.
Conversely, if inflation shows signs of cooling, the likelihood of a rise in the gold price increases—especially if the labor market also remains weak.
In other words, a combination of a cooling labor market and easing inflation could serve as a very positive catalyst for gold.
Watch out for bearish structures that haven’t fully disappeared yet
Although short-term momentum is bullish, the broader market structure still shows a bearish tendency that must be taken into account.
The price is currently testing an area that could be considered an extreme supply zone or a reversal zone.
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Therefore, the recent breakout does not automatically mean the entire bearish structure is over.
There is a difference between bullish momentum and a bullish market structure. Momentum can shift quickly, whereas structural changes require stronger confirmation.
That is why support zones below the current price remain so important.
Two key support zones to watch
There are at least two important support zones to monitor.
First, the 200-day EMA, which previously acted as dynamic resistance. If the price stays above it, this level could potentially turn into support.
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Second, there is the $4,200 level, which is crucial for maintaining the short-term bullish structure.
As long as the price remains above these two levels, the bullish scenario still has a significant chance of playing out.
Conversely, if the price breaks back below $4,200—confirmed by strong selling pressure—the previously formed accumulation process could be considered a failure.
When would the bearish scenario reactivate?
The bearish scenario could reactivate if several conditions occur simultaneously.
First, inflation rises again and exceeds market expectations. Second, the price fails to hold a key support level. Third, a breakdown occurs confirming that the previous breakout was a false one.
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Under these circumstances, the accumulation process around the $4,000 mark could be invalidated, and gold might potentially enter another deeper correction phase.
Therefore, traders and investors should not focus solely on the $4,500 target. The levels below the current price are crucial for determining whether the bullish trend is truly sustainable.
No confirmation of a correction yet
Interestingly, there is no strong confirmation yet that a correction has actually taken place.
One possible approach, therefore, is to wait for the price to reclaim the previous high and then observe whether a healthy pullback occurs.
If a pullback occurs but the price remains above a key support zone, this could present an opportunity to retest the buyers’ strength.
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Conversely, if the pullback turns into a breakdown, the bullish structure must be re-evaluated.
Strategy for the coming week
The preference remains with the buyers for the coming week.
The primary focus is not only on achieving gains towards $4,500 but also on observing the price’s reaction at resistance levels and how it holds up during pullbacks.
Several key historical levels can serve as potential pullback zones, while the 200-day moving average (EMA) and the $4,200 mark require close monitoring.
On the fundamental front, the focus remains on July’s inflation figures. Lower-than-expected figures could strengthen bullish momentum, whereas higher inflation might trigger a correction and a retest of support levels.
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Conclusion
All in all, gold is in an interesting phase.
An impulsive breakout from the downtrend line following two months of accumulation around $4,000, a smooth stochastic crossover from oversold territory, a breakout above both the 10-day and 200-day moving averages (EMA), and a weakening labor market all provide positive confirmation for buyers.
The weekly price target is around $4,500. However, the path to that level depends on the price’s ability to maintain support and the market’s reaction to the July inflation data.
If both inflation and the labor market show signs of cooling, the likelihood of further strengthening increases.
Conversely, if inflation rises again and the price drops below $4,200, the previous accumulation phase could be negated, potentially reactivating the bearish scenario. Therefore, momentum for the coming week remains in favor of the buyers, yet support levels below the current price are just as important as resistance levels above it.
Under these circumstances, the question to be answered is not only “how high can gold rise?” but also “at what level is the bullish scenario considered to have failed?” ***tok
