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The price of gold failed to rally last week despite serious strong bullish price catalysts for precious metals coming into the mix. Seasonal influences and demand issues are still appearing weigh on the yellow metal right now.
Gold bulls looked past the strongest rise in the cost of living in the US since 1992 as the June Core PCE inflation number came in at 3.9 percent on an annual basis. Precious metals usually pop higher when inflation data rises, however, only a muted reaction was seen in the metals market.
Bullish news surrounding the $1.2 trillion infrastructure spending bill failed to ignore gold prices. Last week the US dollar also gave back a portion of its post-FOMC gains, however gold failed to take advantage on the pullback in the greenback. Typically, gold has a reliable inverse relationship with the US dollar currency.
Another factor potentially weighing on the US dollar currency is seasonality. June and July are typically weak months from a seasonal perspective according to a historical study of gold prices going back to the year 2000.
It should also be noted that gold demand in China and India is very weak right now according to domestic sales data. Indian gold vendors are reporting that gold sales have slumped as wedding season comes to an end and gold buyers are waiting for lower prices.
Current sentiment metric towards gold suggest that further price losses are possible as the retail crowd remains extremely bullish. The ActivTrades market sentiment tool shows that 71 percent of traders are still bullish towards gold.
Based on the data I have mentioned, seasonal effects, and the fact that gold is struggling to rally on bullish news, the price of gold may need to head lower before it starts to head higher again.
Gold short-term Technical Analysis
The short-term technicals for gold shows that a neutral triangle pattern has formed, with the yellow metal staging a false breakout above the triangle pattern last week.
With the false breakout confirmed, it appears that gold bears are going to test the downside again. It would seem that short-term weakness is likely to be encouraged under the $1,775 level.
A test towards the $1,750 and $1,730 levels seem likely under the $1,775 level. Bulls need to clear the $1,800 resistance level with conviction this week to have a shot at resting the $1,840 area this week.
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Gold Medium-term Technical Analysis
According to the daily time frame, gold is approaching a critical rising trendline that must be defended to stop a technical meltdown towards the $1,710 to $1,678 support zones. The trendline in question is found around the $1,730 this week.
On a long-term basis, gold is clearly starting to form a cup and handle pattern, which looks to be near completion. More aggressive traders may look to accumulate gold around current levels in expectation of an explosive breakout above the $2,000 level in the long-term.
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