Gold Technical: Poised for a potential bullish breakout as US CPI looms

• In the past four weeks, Gold (XAU/USD) has traded in a tight range environment below US$2,532 key intermediate range resistance.
• Positive momentum reading and a major bearish breakdown seen in the 10-year US Treasury real yield may trigger a bullish breakout in Gold (XAU/USD).
• Watch the key medium-term support at US$2,435 for Gold (XAU/USD).

This is a follow-up analysis of our prior report “Gold Technical: The recent sell-off may have reached a potential bullish reversal level at US$2,353” published on 26 July 2024. Click here for a recap.

Since our last publication, the price actions of Gold (XAU/USD) have managed to stage a rebound above the US$2,353 bullish reversal level and resumed its impulsive upmove sequence to print a recent fresh all-time level of US$2,352 on 20 August.

Considering the upcoming key US inflation data release later today, where the core inflation rate for August is expected to show signs of a deceleration trend continuation of the inflationary conditions in the US, coming in at 3.2% y/y, a similar pace to 3.2% recorded in July, which was a three-month low.

Through the lens of technical analysis, several positive elements have emerged that may support a potential bullish breakout for Gold (XAU/USD) after four weeks of tight-range trading.

10-year US Treasury real yield has staged a major bearish breakdown

Fig 1: US 10-YR Treasury real yield major & medium-term trends as of 11 Sep 2024 (Source: TradingView, click to enlarge chart)

The 10-year US Treasury real yield is measured by subtracting the 10-year breakeven inflation rate derived from 10-year US Treasury Inflation-Protected Securities (TIPS) from the nominal 10-year US Treasury yield.

If the 10-year US Treasury real yield is trending downwards, it implies that the long-term real opportunity cost of holding Gold (XAU/USD) is reduced as Gold is a non-income bearing asset, and vice versa when the 10-year US Treasury real yield trends upwards (see Fig 1).

Right now, the 10-year US Treasury real yield has just breached below major support at 1.62% (in place since late December 2023) which suggests that Gold (XAU/USD) has become more valuable as its associated long-term opportunity costs may be further reduced given the next medium-term support of the 10-year US Treasury real yield rests at 1.38%.

Hence, it may propel more demand for Gold (XAU/USD) which in turn is likely to drive up its price.

Medium-term momentum remains positive for Gold

Fig 2: Gold (XAU/USD)  major & medium-term trends as of 11 Sep 2024 (Source: TradingView, click to enlarge chart)

The price actions of Gold (XAU/USD) have continued to oscillate within its medium-term ascending channel in place since the 6 October 2023 low of US$1,810 and are supported by a rising 50-day moving average that is also confluences closely with its key medium-term pivotal support at US$2,435.

In addition, the daily RSI momentum indicator has continued to display a series of “higher lows” above its 50 level and has not reached an overbought condition.

These positive technical elements suggest that upside momentum may be building up for a potential bullish breakout for Gold XAU/USD, a clearance above US$2,532 may see the next medium-term resistance zone coming in at US2,640/715 in the first step (see Fig 2).

On the other hand, a break below US$2,435 negates the bullish scenario to kick start a potential multi-week corrective decline sequence within its medium-term and major uptrend phases to expose the next support at US$2,359, and below it sees an increased risk for an extension of the corrective decline towards the US$2,285 long-term pivotal support (also close to the 200-day moving average).

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