Last week, we witnessed the price of spot gold (XAU/USD) refresh all-time highs (ATHs), comfortable north of the $2,000 mark at $2,195. Markets witnessed demand for the precious metal increase based on a number of factors, which has seen buyers lift prices higher for eight consecutive days. Last week also recorded its largest one-week gain since early October 2023.

Gold Demand

Factors underpinning gold include rate expectations forecasting that the US Federal Reserve (the Fed) will step up and begin loosening policy. As of writing, the OIS curve has priced in the first 25bp cut in June, with approximately 100bps of cuts for the year (four rate cuts). You may remember from the Fed’s latest Dot Plot that the Fed projected three rate cuts this year.

The anticipation of lower rates in the US, coupled with lower (real) yields and the US dollar (USD) trading on the back foot (MTD, the buck is lower by -1.3% according to the US Dollar Index) along with speculative trend trading, has contributed to the precious metal’s appeal.

Trend-Follower’s Market

Much like the price of BTC/USD and the S&P 500 right now, following XAU/USD’s ATH last week, trend-following strategies will seek a correction and possible dip-buying opportunity in anticipation of further record highs.

Keeping things simple, the Relative Strength Index (RSI) on both the weekly and daily charts exhibit overbought conditions (the daily chart is approaching indicator resistance as far north as 87.21, a level not showing itself since August 2020), which highlights a potentially overheated market. This, in addition to the clear uptrend we are in at the moment, could prompt a correction in this market to retest the previous ATH at $2,147.

Should a correction to $2,147 emerge, how one pulls the trigger will be trader-dependent. Some will seek additional confirmation. This might be in the form of a news event that should bolster gold; we have US CPI tomorrow, for example, and should we see a notable miss, this is likely to trigger a dovish repricing and weigh on the dollar and, by extension, further strengthen gold. Alongside this, a technical trigger will also likely be employed (could be anything from a basic bullish candlestick configuration to a more advanced assessment of the approach to the level [think AB=CD patterns]).

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