Gold prices rallied strongly after breaking out of the $4,000 - $4,200 per ounce consolidation range, before pausing after reaching their highest level in two months.

August gold futures ended the session at $4,427 per ounce, down $20.80, or 0.47%. Even so, excluding the previous session, this remained the highest closing level since June 5.

Weak Jobs Data Shifts Expectations for the Fed

Gold’s breakout was triggered after the July ADP private-sector employment report showed that the economy added only 44,000 jobs, well below the forecast of around 70,000.

A weaker labor market reduces pressure on the Federal Reserve to continue tightening monetary policy. Combined with a softer U.S. dollar, this helped gold surge by as much as $176 in a single session, its strongest one-day gain since February.

Technical Breakout Reinforces the Bullish Structure

For several months, gold had been trapped within a descending triangle pattern and the $4,000 - $4,200 per ounce range.

Once price broke above the upper boundary of the pattern, accumulated buying pressure was released quickly. At the same time, short positions based on the expectation that $4,200 would continue to act as resistance were forced to close.

In just four trading sessions, gold gained around $314, or 7.62%.

CPI Becomes the Next Major Catalyst

Markets are now turning their attention to the July CPI report.

If inflation cools, expectations for another Fed rate hike could decline further, providing additional support for gold. Conversely, a stronger-than-expected inflation reading could trigger a correction.

From a technical perspective, gold has now formed five consecutive higher highs and five consecutive higher lows, while the MACD continues to show positive momentum.

Key Price Levels to Watch

The $4,400 per ounce area is currently acting as near-term support.

If gold holds above this level and breaks through the technical resistance above, the next upside target could be around $4,600 per ounce.

However, if gold falls below $4,400, the market could retest the support area near $4,200 per ounce.

Conclusion

Gold’s current rally is being supported by both expectations of a less hawkish Federal Reserve and a significant technical breakout after months of consolidation.

In the short term, the CPI report will be a key factor in determining whether gold has enough momentum to maintain its bullish structure and move toward higher levels.

This article is intended solely to share market information and analysis. It does not constitute a recommendation to buy or sell.

Source: Kitco