Gold Bull Run Looks Finished—Unless You Look Closer

Gold price has tumbled, with spot price declining as much as 3.35% — the sharpest one-day decline since early June. After a strong August rebound, the precious metal has failed to carry the momentum through September, as interest-rate sentiment shifted to a more hawkish tone. Much of today’s selling happened during Asian hours, which Saxo Bank analysts said may reflect profit-taking by Chinese investors ahead of the Golden Week holiday starting Thursday. Technically Speaking The daily chart shows the decline resolving a bearish setup that built over weeks. Since the mid-August rebound high near $4,650, gold has printed a clear series of lower highs. Today’s red candle marks a decisive break below that structure resembling a tilted head-and-shoulders pattern. If that pattern plays out, the decline could retest and potentially exceed the year’s low. Gold daily chart, Source: TradingView The Relative Strength Index (RSI) has dropped to around 37, the lowest since June, but remains above the oversold threshold of 30, suggesting the downside still has room to run. Exceeding a prior yearly low would mean a decline from the $5,600 high of at least 30%. While dramatic, such pullbacks are a relative norm in commodity bull markets. In 1975, after rallying from $35 per ounce to $200 per ounce, gold fell to $100, losing 50% of its value before rallying to nearly $850 by the end of the decade. Fundamentals Depend on the Timeline Still, the short-term fundamentals are unambiguously hostile. Oil resumed its climb after President Donald Trump rejected Iran’s proposal to reopen the Strait of Hormuz, keeping inflation concerns alive. Cleveland Fed President Beth Hammack and Governor Michael Barr both signaled further tightening may be needed, and futures now price a roughly 70% probability of a 25-basis-point hike in October. Meanwhile, rising Treasury yields and a dollar index up 0.2% at 101.14 raise the opportunity cost of holding a non-yielding asset. Yet the structural case remains intact. Raphael Lamm, whose L1 Gold Fund has returned a net 235% since launching last year, called this recent decline “very temporary,” citing the unsustainability of U.S. government debt above $40 trillion and expanding central-bank allocations. China has bought gold for 22 consecutive months and added aggressively on the dip, according to Scottsdale Mint CEO Josh Phair, while Poland is targeting reserve allocations in the upper 30% range. Central banks with minimal holdings are moving toward 1-3%, and those already there toward 5-7%. The near-term path hinges on Fed rhetoric, U.S. inflation and jobs data, and Hormuz headlines, but the course of action will be vastly different for traders chasing momentum and investors betting on trends that operate around presidential and not lunar cycles. Image via Shutterstock