A 9-day rally on gold is rare, but it hasn’t always lead to a market top

Gold prices have risen for nine consecutive days, seven of which occurred as a fresh all-time high (ATH) on a closing basis. And that is an outlier stat, even before we factor in that it happed at an all-time high. The main driver behind gold’s momentous rally are renewed bets that the Fed will begin cutting interest rates in June. And this has allowed it to glean and allow other supporting factor to come back into focus, that were seemingly being ignored before (such as geopolitical tensions.

A 9-day rally on gold is rare, but it hasn’t always led to a market top

Looking back at data from the 1960s, gold has only risen nine or more day son nine occasions. And whilst this underscores just how rare this bullish sequence is, it should be noted that it doesn’t necessarily lead to an imminent market top.

July 2020: Gold rose for nine to mark the end of the bullish sequence. However, only a single down-day followed before another five-day rally, and that is when we saw the actual pullback of around -10%.

July 2011: Gold rose for an impressive 11 consecutive days. Yet after a small consolidation last just four days, prices then went on to rally 19.6%. Interestingly, it then pulled back around -10.9%, although there was to be one more leg higher before a bear market followed.

November 2006: nine consecutive up days were followed by a -2.6% retracement, yet golf then rose a further 5.6% over the next three weeks.

We’d have to go back to the last century to look closer at the other nine-or-more bullish sequences, but already it seems apparent that when gold wants to rally, it rallies. I’ll therefore admit that I’m less inclined to bet against gold simply because it has had a solid run over the past nine days.

Of course, we do have a key US inflation report within the next 12 hours that could send gold sharply in either direction. Gold traders will want to see CPI figures fall below expectations to justify the rally that took gold prices to these giddy heights.

Gold technical analysis (daily chart):

Clearly, gold is within an uptrend and we don’t need to refer to any momentum indicator as it will rammed firmly into ‘overbought’. Yet such indicators are best suited to oscillating markets, whereas gold is simply parabolic.

The 1day implied volatility bands suggest a $15 move in either direction, which I suspect may be on the low side given the pending inflation report which is arguably more important than the Fed’s meeting in two weeks time. Should inflation come in hot, I suspect gold is vulnerable to move than a $15 lower given the strong rally that got us here.

The 1-week implied volatility band implies a $40 move in either direction, around its old intraday record high to the $2224 area.

Gold technical analysis (4-hour chart):

Prices are trading within a tight consolidation just beneath the record highs. Should prices be driven lower, the high-volume node around $2157 makes a likely target or even support level, which is also near the weekly pivot point and prior intraday ATH. A break beneath 2146 assumes a trend reversal on this timeframe and a deeper pullback on the daily chart.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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