XAU – Gold Volatility Narrows, Brewing for Triangle Breakout

Last week, the forex market focused on the joint intervention by the U.S. and Japan, significantly pressuring the U.S. dollar index. The Federal Reserve maintained its interest rate unchanged amid internal disagreements. While Chairman Warsh reiterated the firm commitment to suppressing inflation, forward guidance became limited and failed to outline a clear policy path, leading the market to interpret it as dovish, thus putting pressure on the dollar. Subsequently, the yen's across-the-board surge became the main catalyst for the dollar's decline. On Thursday, the market already sensed that Japanese authorities were intervening on a large scale by selling dollars and buying yen during the US trading session. Data released by the Bank of Japan the following day further indicated that the authorities may have sold approximately $58.97 billion in yen that day. On Friday, the news intensified. First, reports indicated that the US Treasury had informed several banks of potential intervention in the yen market and advised them to prepare for further action. Then, media reports revealed that the Treasury Secretary's handwritten to-do list during the Camp David cabinet meeting included the purchase of $5 billion to $10 billion in yen, making the planned nature and scale of the intervention even clearer.

The U.S. Treasury officially intervened in the foreign exchange market on Friday, buying yen, while the Federal Reserve Bank of New York, through Goldman Sachs and Morgan Stanley, executed a transaction to sell euros and buy yen. This marks the first time the US and Japan have jointly intervened directly in the foreign exchange market since the G7's joint action in 2011, signifying a major shift in the U.S. stance towards a strong dollar. Further news over the weekend continued to confirm the U.S. and Japan's determination to jointly prevent the yen's depreciation.

The U.S. dollar index retreated significantly after failing to break through the 101.7 resistance level last week, hitting a low of 99.69 on Friday, its lowest since June 17th, and is currently trading between 99.3 and 100.8. The USD/JPY pair continues to be under pressure, with resistance levels at 160.9 and 162.9, and support levels at 157.1 and 154.8. Close attention should be paid to follow-up news regarding intervention this week.

Looking ahead to this week, market focus will shift to a series of important economic data. The July manufacturing and services purchasing managers' indices will be released on Monday and Wednesday, respectively, with the most crucial being the U.S. July non-farm payroll report on Friday. The market expects July job growth to rebound to 91,000, up from 57,000 in June, but the unemployment rate may climb further from 4.2% to 4.3%. If the data exacerbates concerns about an economic slowdown, it could put further pressure on the US dollar.

Gold consolidated last week, fluctuating between $3,996 and $4,120 per ounce, closing at $4,046.15 at the weekend. The price range for gold narrowed significantly in July, returning to a similar range to that of August last year, when the price was $3,447 before rising to a record high. Based on recent major upward trends, the 0.5 Fibonacci retracement level is at $3,953, therefore gold is currently still oscillating within a wide range of $3,953 to $4,287. Referring to the range from the consolidation bottom to the record high in August last year, the current trading range roughly corresponds to $3,834 to $4,174. The 4-month moving average at $4303.8 and the 9-month moving average at $4511 form significant medium-term resistance, while the 25-month moving average provides support at $3578.

Since March, after retracing to around $3942, weekly volatility has been consistently narrowing, gradually forming the apex of a triangle pattern. The upper trendline is around $4168, and the lower trendline is around $3878, with the price hovering within this range, poised for a breakout. Theoretically, this consolidation could continue until September, but based on recent patterns, this week is quite close to a breakout point.

Based on the volatility structure, the first resistance levels to watch are the 9-week moving average at $4134 and the 50-week moving average at $4349. If the 4-week and 9-week moving averages overlap, a clear crossover would be a key signal of a trend reversal. Support levels are seen at $3924 and the 100-week moving average at $3858.

On the daily chart, the three moving averages have been converging for several consecutive days, indicating a high probability of a breakout, especially since this is the first week of August, when price movements are often more directional. However, caution is advised against false breakout traps. A successful upward breakout could target $4189 and $4234, with further gains potentially challenging the resistance around $4363. Conversely, if the support below is breached, gold prices may test $3834 and $3739.

In the short term, gold prices are under pressure at the $4071 level. A break and hold above this level is necessary to trigger another upward wave, potentially challenging the $4157 and $4201 areas, and even $4327. Support levels are at $4014, $3923, and $3773.

The key support/resistance level for August is estimated at $4064; a valid breakout will be confirmed by the closing price on that day. If the price closes above this level, the next targets are expected to be $4168 and $4307; otherwise, it will continue to be constrained by major moving averages, and the trend will turn downwards to test $3924 and $3821. The expected trading range for the early part of the week is between $3983 and $4107.

London Gold August Forecast Range:
Resistance: 4063 – 4114 – 4164 – 4234
Support: 3924 – 3871 – 3821 – 3698

London Gold August 3-7

Forecast Range:
Resistance: 4051 – 4079 – 4107 – 4141
Support: 3983 – 3954 – 3927 – 3868

London Gold August 3:
Forecast Early Range: 4028 – 4054
Resistance: 4073 – 4091 – 4118 – 4133
Support: 3999 – 3983 – 3964 – 3919

SPDR Gold Trust Gold Holdings:
July 27 – 1,009.3 tons
July 28 – 1,008.73 tons
July 29 – 1,009.3 tons
July 30 – 1,007.87 tons
July 31 – 1,007.02 tons

31/7 AM London Gold Fix: $4052.2 
31/7 PM London Gold Fix: $4026.6 

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