Gold prices continue a swift ascent in August, but technical analysts warn the market may be overheated, signalling a possible short-term correction after reaching overbought levels for the first time since March.
Gold has continued its sharp rally into August, but market watchers say the move may be running ahead of itself. CNBC reported that the precious metal has pushed above its 50-day moving average and, for the first time since March 10, entered what technical analysts call overbought territory, a sign that prices may be vulnerable to a short-term pullback.
The rally has been swift. Gold futures are up about 8% this month, while last week’s 7.1% advance was the strongest weekly gain since January and lifted prices to their highest level since June, according to CNBC and Bespoke Investment Group. The latest surge has been supported by weaker-than-expected US employment data and expectations that traffic through the Strait of Hormuz may normalise after a reopening agreement.
Bespoke said gold’s close on August 7 at more than one standard deviation above its 50-day average was the first such finish in 103 trading days, one of the longest stretches without an overbought signal in its records. Its historical analysis of similar periods found that gold fell by an average of 0.22% over the following week and was higher one year later in only 37% of cases. Even so, gold December futures ended the session 0.2% higher at $4,428.50 an ounce, underscoring that momentum has not yet fully broken.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
