Gold Rallies to Fresh ATH as $3k Battle Begins

Gold, XAU/USD Talking Points:

• Gold prices set a fresh all-time-high in early-week trade, once again testing above the $2,950 level.
• The bigger question is the major psychological level lurking overhead at $3k/oz. Gold has had very strong bullish momentum since the support test in February, as a bull pennant breakout has led to a near-parabolic like move. But major psychological levels of $1k and $2k both took time for buyers to ultimately leave behind, begging the question as to whether something similar might appear at the $3k level.
• I’ll be looking at gold in-depth during the Tuesday webinar, and you’re welcome to join. Click here for registration information.

Gold spent a little more than two months in a digestion pattern as a symmetrical triangle had built after the October 31^st high and the November 14^th low. Interestingly that drawdown appeared around the U.S. Presidential election which didn’t seem to make much sense, as President Trump wasn’t exactly expected to usher in an era of austerity. But the crypto boom perhaps had something to do with it as anti-fiat flows pushed into Bitcoin and other digital currencies; and given the trough-to-peak move of 40% that gold had showed from the February low up to the October high, it made sense that some profit taking might take place.

But now bulls are back in-control, and they have been since the higher-low that showed just after the FOMC rate decision on December 18^th.

Gold Weekly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold has a full head of steam and there’s a lot of reasons for that. And given recent momentum, it can be difficult to imagine anything other than the very bullish backdrop that’s shown of late. And to be sure, as I’ve said in webinars countless times, even during the digestion into December, I see little reason for being bearish on gold, especially from a fundamental basis. It’s not as if the U.S. government is considering reigning in spending anytime soon, which means more debt and debasement of fiat currencies, which should be a bullish factor for assets like gold, or perhaps even Bitcoin.

But that doesn’t mean that a market has to make a linear movement higher, and if we are going to get a pause in gold, I think that backdrop may be nearby.

Historically, gold has had difficulty on initial tests of $1,000 levels, and I think part of the reason for the stall in Q4 was the fact that we got closer to another test of a major psychological level at $3k.

When gold first tested the $1k level in March of 2008, prices posed a deep pullback of more than 33%. The next test of that level was almost a year after the first and, again, it failed as did a third test in June of 2009. And keep in mind – this was around the Financial Collapse as the Federal Reserve was ramping up stimulus.

Gold finally broke through $1k/oz for good in October of 2009, and that led to a fast push up towards the next major thousand-dollar interval at $2k. Two years after the $1k breakout, gold prices established a new high at $1,920/oz, and that’s when gold prices started to go into reverse.

The metal had fallen shy of the big figure by less than $80 and that price marked the high for almost the next nine years; until the next crisis came into play.

The $2k level finally traded in the summer of 2020, when markets were flushed with liquidity produced by central banks to offset global shutdowns driven by Covid. Interestingly that first test above $2k in spot gold in August of 2020 took place as Bitcoin was trying to recover back-above the $12k level.

Like the current backdrop, it appeared that there were no bears in sight as strong momentum, a supportive fundamental backdrop and a massive move in gold made for a difficult-to-doubt backdrop on the long side of the metal.

But - $2k/oz turned out to be too much to handle, and that level helped to set the highs for the next three-and-a-half years until bulls were eventually able to mount a move above in Q4 of 2023.

But, notably, from this example, we can see where even coming within proximity of a major psychological level, a price that could have socio-economic consequences once it actually trades, can be enough to alter the flow so that resistance shows before that price is even tested. And given the stalling that’s shown in gold over the past couple of weeks, it reasons to imagine that proximity to $3k is play a role, which I’ll look at deeper below.

Gold Monthly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Shorter-Term

At this point resistance has continued to show at the 2950 level in gold and this is after bulls shied away from a test there two weeks ago. But, at this point, buyers haven’t relented as this morning brought a third consecutive test of that price on the daily chart, and this time buyers were able to budge up to a fresh ATH, even if slightly. And as I noted earlier, there’s not much that I can consider bearish here from a technical perspective as buyers have just continued to push and they haven’t yet let go of the reins.

But, if you think of this from the perspective of proximity, is now a great time to get long in gold, when price is far away from recent supports and getting closer and closer to a major psychological level? Even with a strong fundamental headwind and bullish momentum that hasn’t yet abated, it can be a difficult prospect to chase gold at current levels and this could be enough to urge patience and caution from chasing.

A pullback to and show of support at the $2900 level could keep the door open for bullish trend strategies, but if price begins to crack below the prior swing-low at 2882, the door can then open for a deeper retracement, with both 2850 and the 2790-2800 zone of interest for larger pullback scenarios.

Gold Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist