On August 6, gold prices staged a dramatic rally, surging 4.1% in a single day—the largest daily gain since February. This breakout has decisively ended the 4,000-4,120 range-bound consolidation that persisted for over a month. With international gold prices climbing, domestic gold prices followed suit, pushing retail jewelry prices at major brands above 1,290 yuan per gram, highlighting strong short-term upward momentum.
This rally is not merely a short-term spike driven by isolated news events. Instead, it reflects a convergence of three forces: the acceleration of a short-term consolidation pattern, medium-term policy cycle influences, and long-term fundamental stimulus. However, this sharp rise has also significantly widened the divergence between bulls and bears, suggesting that extreme volatility may become the norm going forward.
The geopolitical tensions in the Middle East, which have been a persistent source of market uncertainty, have finally shown signs of easing. The reopening of shipping lanes in the Strait of Hormuz between the U.S. and Iran has signaled positive negotiation prospects, while international crude oil prices have dropped notably, alleviating fears of sustained energy-driven inflation.
Where to turn next
Gold prices spent nearly two months building a base around the 4,000 level, constrained by the descending triangle's upper resistance since June. They also faced sustained pressure from the 20-day and 50-day moving averages. However, following yesterday's data release, gold bulls broke through all key short-term resistance levels, forming a clear bullish reversal technical pattern.
Medium- to long-term headwinds
Despite the current rally, several medium-to-long-term bearish factors must not be overlooked. These will determine whether gold can sustain a single-sided super bull market. First, the Federal Reserve has not fully closed the door on further rate hikes. If the upcoming nonfarm payrolls and CPI data rebound, the probability of a September rate hike could increase, pushing U.S. Treasury yields higher and triggering a deep correction in gold prices. The market has only temporarily reduced rate hike expectations, not confirmed the start of a full easing cycle this year.
Second, gold ETF holdings remain relatively low, with large institutional investors not yet returning in force. This rally is primarily driven by speculative and quantitative funds, leaving the sustainability of the uptrend open to question. Should adverse conditions emerge, the market could see a wave of profit-taking.
Third, major non-U.S. central banks, including the European Central Bank and the Bank of England, maintain a hawkish stance, unlikely to shift to accommodative policy soon. The strength of the U.S. dollar, with its medium-to-long-term foundations intact, will continue to limit gold's upside.
Technical levels to watch
From a technical perspective, the first short-term resistance level is the 4,300 integer mark, which is also the current rally high. The next major resistance is at 4,400, a key Fibonacci retracement level and a zone of dense short-selling activity. Only a decisive break above 4,400 will open the door for a medium-to-long-term bull run, with the next target around 4,500.
On the downside, the first support level is near the 50-day moving average at 4,240. The core bullish defense line is at the 4,200 integer mark. If gold loses this level, the current technical breakout could be invalidated. In a bearish scenario, the ultimate support remains at the 4,000 psychological level. As long as this level holds, the medium-to-long-term consolidation range will not be broken. This information is for reference only and does not constitute investment advice. Investors should act at their own risk.
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