Gold is attempting to break out of a punishing selloff that has run since late August, just as the US dollar's rally shows signs of cracking and Treasury futures try to carve out a bottom. The metal has cleared $4,184.43, the October 7 high, with bulls eyeing $4,225 to $4,235 next.
Gold cleared $4,184.43, the October 7 high, after breaking above downtrend resistance during Asian trade. The move comes just as two markets that had weighed on gold since late August show signs of turning.
Dollar's rally shows signs of exhaustion
The US dollar has kept a strong inverse relationship with gold, with the 120-session correlation at -0.86 and the past-month correlation at -0.80. That link matters now because the dollar's rally had become historically stretched.
Its RSI (14) reached 76.8, placing it in the highest 1.5% of observations since 2013, while its ATR (50) stretch exceeded four, ranking in the highest 5% of the dataset. However, RSI (14) has since moved back below overbought territory and is setting lower highs, and the uptrend in place since early September has cracked.
Treasury futures try to bottom
US 10-year Treasury note futures have shown a positive correlation with gold over the past week and fortnight, strengthening to +0.89 over the past month. The futures fell below the lows set in 2023 during a punishing selloff. RSI (14) then dropped to 19.7 in late September, among the lowest 0.5% of observations since 2016, while the ATR (50) stretch reached -5.08, among the most extreme 2% of readings. Noticeable downside wicks alongside a jump in trading volumes suggest buyers have stepped in at lower levels, though it remains too early to declare a definitive bottom.
Gold's breakout gathers momentum
Gold fell more than $600 per ounce from a high just shy of $4,700 before rebounding sharply from support around $4,070. RSI (14) has moved rapidly above 50, while MACD has staged a bullish crossover and flipped positive.
A pullback and bounce above $4,184.43 could offer an entry for longs targeting $4,225 to $4,235, followed by $4,300, $4,333.58 and $4,400. A reversal back beneath $4,184.43 would instead open the door to shorts targeting the broken August downtrend, then $4,116.30, a level that has acted as both support and resistance this year.
Source: Investing.com
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