Spot gold has once again pushed the market to a new critical juncture. During the Asian session on August 25th, the price of gold traded high around $4670, approaching $4680 during the session; it had earlier touched $4680.65, while New York gold futures closed near $4710. The rapid ascent from breaking through $4600 to testing $4700 in just a few days has shifted the market's primary concern from "why is gold rising" to "can we still buy now."
This rally is not driven by a single piece of news. The simultaneous convergence of technical breakthroughs, a weaker US dollar, concerns over US fiscal credibility, and geopolitical safe-haven demand has aligned trend-following funds, safe-haven capital, and long-term allocation funds. However, the persistence of the drivers for higher prices does not mean any price level is suitable for buying. The closer gold gets to $4700, the more the short-term risk-reward ratio needs to be recalculated.
Technical Breakthrough Triggers Follow-through Buying
Gold's earlier breakthrough of the 200-day moving average around $4513, followed by its consolidation above the $4600 psychological level, typically triggers trend-following buying for algorithmic funds and technical traders. This also forces short sellers who previously bet on a decline to cover their positions, leading to accelerated price gains in a short period.
However, technical buying has a distinct characteristic: it can arrive quickly and leave just as fast. Following consecutive gains, daily indicators are already in overbought territory. The $4675 to $4700 zone is also an area where psychological resistance aligns with short-term technical pressure. If fresh buying momentum fails to keep pace and early longs take profits, a rapid pullback of tens or even hundreds of dollars could occur.
US Dollar and US Fiscal Risks Emerge as a Second Major Theme
The recent weakness in the US dollar has reduced the cost for non-US dollar investors to purchase gold, serving as the most direct macro tailwind for the gold price. More notably, following the US Treasury's expansion of long-term bond buybacks, the market has reignited discussions on US debt and fiscal sustainability. Even as long-term US Treasury yields subsequently rebounded, gold maintained its strength, indicating that some funds are trading not just on "lower yields" but also on hedging against US dollar credibility and government borrowing risks.
ING commodity strategist Ewa Manthey believes support comes from a combination of a weaker US dollar, falling short-term yields, inflows back into gold ETFs, and continued central bank purchases. However, this logic also has a flip side: if inflation reignites and the Fed signals potential further rate hikes, a synchronized rebound in US Treasury yields and the US dollar would increase the holding cost for gold. The premium gained from fiscal concerns could also be overwhelmed by short-term selling pressure.
Geopolitical Safe-Haven Demand Continues to Add Premium, But It's Not the Only Factor
Expanded US sanctions on Iran-related entities and sectors have made Middle East tensions a renewed safe-haven catalyst for gold. When geopolitical risks escalate, funds typically increase their gold allocations; if tensions ease, this related premium could also be quickly unwound.
Oil prices are a variable that can easily be overlooked moving forward. High oil prices can, on one hand, intensify geopolitical tensions and stagflation fears, supporting gold. On the other hand, they could also re-accelerate US inflation, forcing the Fed to maintain a hawkish stance. In other words, rising oil prices are not always a one-way positive for gold; the ultimate impact depends on whether the market is more concerned about safe-haven demand or more worried about rate hikes.
$4600 Acts as the Short-Term Bull-Bear Line
Looking at the current structure, $4675 to $4680 represents the first short-term resistance, while $4700 is a significant psychological barrier. A decisive break above could open the path towards the $4719 to $4724 zone. On the downside, initial support is seen at $4594 to $4600. If the price can hold above this area upon a retest, it would indicate the previous breakout is transforming into support, suggesting the bullish trend remains intact.
If $4600 is lost, the next support lies around $4551 to $4556. A further break below this zone would signal a shift from a normal high-level consolidation to a deeper correction. For those considering chasing the rally, the key is not to guess the exact top but to first identify which price level, if breached, would necessitate a reassessment of the original bullish thesis.
This week's US core PCE data and remarks from Fed officials at Jackson Hole could serve as triggers for the next wave of volatility. Cooling inflation and dovish-leaning policy rhetoric would help gold maintain its breakout gains. Conversely, any unexpectedly hawkish signals could propel a rebound in the US dollar and yields. While medium-term support for gold remains, the area near $4700 has entered a zone sensitive to both news and positioning. Waiting for the data to clear and for the $4600 support to be confirmed holds more reference value than merely focusing on the extent of the upside move.
