Gold consolidates gains, bulls in control, breakout aims $3,700-$3,750

Gold continues to trade with strong bullish bias supported by price stability above psychological zone $3600 and any retracement towards this zone is witnessing buying intervention as macro factors have collaborated in support of Gold and against Dollar.

After the recent record rally to $3675, prices cooled a little, retracing towards $3613 which saw strong buying reclaiming $3650 area.

4 hour chart show Gold has been trading within a broad ascending channel with continuous higher high - higher lows indicating strong uptrend.

If bulls continue to dominate and break higher above $3675, expect extended upside aiming $3683-$3688 followed closely by $3693-$3698 above which $3705 will come into play.

Fundamental drivers

• Interest rate cut by Federal Reserve:
  Expectations of 25 BPS interest rate cut now seems to have become a base case which is widely being priced in and keeps Gold attraction intact. As the US labour markets data indicated by Non Farm Payrolls, Initial Jobless Claims have strengthened the possibilities of rate cut by Fed.
• CPI inflation data and PPI numbers:
  Rising US CPPI inflation numbers indicate inflation remains sticky where as PPI has softened. This mix message from data results support demand for Gold as the Fed easing despite inflation, makes Gold more attractive bet as inflation hedge.
• Real yields and Dollar Index weakness:
  As Yields on US Treasury, especially real yields which is nominal yields minus inflation, are under pressure, investor sentiments favour Gold. More so when Dollar Index fighting a tough challenge to reclaim 98 - 98.50 , making the dollar denominated Gold more attractive as holding cost goes down.
• Safe haven demand, Geo political crisis:
  Israeli air strikes on Qatar based Hamas leadership has increased mid east tensions and added Geo political crisis, bolstering safe haven demand for Gold.
• Central bank buying:
  Central Banks around the world are reported to have increased Gold holdings in forex reserves which is supporting Gold demand globally.

Technical drivers

Gold is in strong bullish momentum and several breakouts above multiple resistance levels have all but confirmed the prevailing bullish trend.

RSI reading of 80 on Daily time frame is on the edge of overbought territory while 4 hour time frame has shed its overbought conditions and has enough room for bullish extension.

Monthly RSI reading of 88 urges utmost caution about a significant correction in near future.

Gold has confirmed bullish breakout above a falling wedge and is retesting the support trendline which is likely to be followed by resumed buying force towards immediate resistance $3658 above which next hurdle is $3675 followed by $3685-$3695.

Immediate support sits at $3635 followed by $3627.

If this support zone is breached, look for drop to local demand zone $3610 below which next support sits at 4 hourly 50 EMA -$3590.

Overall outlook

Strong bullish moves have witnessed smaller downward retracements. Also the formation is bullish as seen by higher high - higher lows.

All the same, caution is essential on heights as break with close below crucial support $3590 will pause the rally, shifting the momentum to short term downward correction.