Gold: Persistent Dip-Buying Could Sustain Bullish Momentum in September
- Gold has seen a seven-month streak of gains, rising 22% this year so far.
- Traders now watching closely for signs of whether this trend will continue in September.
- The uptrend remains intact, with buying interest likely to persist on dips.
- For less than $8 a month, InvestingPro’s Fair Value tool helps you find which stocks to hold and which to dump at the click of a button.
In August, gold continued its impressive streak, marking its seventh consecutive month of gains. This performance has led to a 22% increase for the year.
The big question now is whether gold will keep rising in September or if it will pause to consolidate. Future movements will heavily depend on upcoming US economic data and shifts in interest rate expectations.
Can Gold Maintain Its Uptrend?
Gold may well keep on climbing, with buying interest on dips likely to persist. This persistent bullish trend should deter bearish traders unless there’s a clear signal of a trend reversal.
There are few compelling reasons to short gold right now. Some analysts argue that gold may still be undervalued, especially considering the devaluation of fiat currencies and the loss of purchasing power due to ongoing high inflation in various regions.
Although disinflation is happening in the US and other countries, this doesn’t equate to deflation. Prices continue to rise, albeit more slowly than before. This backdrop should support the demand for gold as a hedge against inflation.
Additionally, the recent sharp drop in bond yields, fuelled by expectations of Federal Reserve rate cuts, is likely to keep gold looking attractive, given carries zero yields. As long as bond yields remain low, gold and silver should avoid prolonged weakness.
Dollar in the Spotlight Ahead of a Busy Economic Week
The US dollar faces a critical week with several significant economic reports on the horizon, including the August jobs report.
After the US Labor Day holiday today, the economic calendar will fill up with key data releases: ISM manufacturing data on Tuesday, JOLTs job openings on Wednesday, and a series of reports on Thursday, including ADP employment data, jobless claims, and ISM services data. The highlight of the week will be the August jobs report on Friday.
The jobs report will be crucial in determining whether the dollar’s recent two-month bearish trend will continue or if we will see a return to more stable trading ranges. For gold to move sharply higher, a weaker jobs number would be needed.
However, if Friday’s jobs report meets expectations, forecasting around 165,000 job gains and a drop in the unemployment rate from 4.3% to 4.2%, the market will likely solidify expectations for a 25-basis point rate cut to start the Fed’s easing cycle on September 18. In that case, gold might not react strongly.
If, however, job growth is weaker than expected—say around 100,000 new jobs—with a potential rise in the unemployment rate, the dollar could weaken further, pushing gold prices up sharply as markets adjust expectations towards a possible 50 basis point rate cut by the Fed.
Ongoing Concerns About China’s Economic Health
Recent mixed PMI data from China’s manufacturing sector have kept investors uncertain about the state of the world’s second-largest economy.
The official manufacturing PMI dipped further into contraction territory at 49.1 in August from 49.4 in July, while the Caixin PMI showed improvement, rising to 50.4 from 49.8. The official non-manufacturing PMI edged up to 50.3, suggesting some stabilization in the Chinese economy.
More evidence of recovery in China is needed. A stronger Chinese economy could boost demand from the world’s largest consumer of gold, potentially supporting or even lifting gold prices further.
Gold Technical Analysis and Trading Strategies
Gold’s steady climb is exactly what bullish traders want to see—small pullbacks, higher highs, and higher lows. The trend remains upward until a lower low is formed. Support is likely around previous levels, such as the old record high of $2,483 from July, which coincides with the 21-day exponential moving average. A bullish trend line, active since February, is also a short-term support to watch around $2,450. On the upside, the only significant level to watch is the all-time high reached last month at $2,531.
Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
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