(Kitco News) - Growing expectations that the Federal Reserve will begin its easing cycle in September are creating a strong tailwind for gold. Many analysts see last month’s record highs as a minor obstacle in the current uptrend.
Analysts note that the precious metal saw its first important test as it held critical support at $2,400 an ounce on Friday. Some have said that this is an important line in the sand as its months-long consolidation is challenged.
“As long as [gold] holds above 2401.4-2405.6 (double support), it looks extremely constructive to me,” said Julia Cordova, Founder of Cordovatrades.com. “A move below 2385.9 would put it back in consolidation, so all eyes will be there if it’s touched.”
After a slow start early Monday, gold is starting to see some follow-through buying from Friday’s session. August gold futures last traded at $2,439 an ounce, up 0.75% on the day and less than 1% away from its all-time highs.
Cordova added that as long as her support level holds, she has an upside target of $2,582.50 an ounce.
In a recent comment to Kitco News, Phillip Streible, Chief Investment Strategist at Blue Line Futures, said that he sees gold as a buy as it holds above $2,400 an ounce; however, he added that potential investors should have aggressive stops at $2,350 an ounce.
David Morrison, Senior Market Analyst at Trade Nation, said that he also sees growing potential for gold.
“The chart looks constructive from a bullish perspective,” he said. “The area around $2,300 has been tested as support on several occasions since April, with the last attempt at a breakdown coming at the end of June. But it has held up well, and the daily MACD is pushing higher as gold moves further above $2,400.”
In a note published Saturday, David Scutt, Market Analyst at CityIndex.com, said that there is not much resistance between $2,400 and $2,450.
“Given bullish signals from MACD and RSI on price momentum, buying dips is preferred to selling rallies in the near term,” he said in the note.
Scutt added that the biggest driver for gold is a potential rate cut in September. According to the CME FedWatch Tool, markets see a 94% chance of a rate cut.
“The rolling 10-day correlation between gold and Fed rate cut pricing in the year ahead sits at 0.96, the same as with US two-year bond yields. That means when yields decline or are expected to decline, gold has almost always risen, and vice versa,” Scutt said.
