After spending the entire month of July coiling up like a spring, gold is finally showing signs of a breakout. The metal rallied over 2% intraday, pushing toward that key $4,200 resistance level. It's still more than 25% below its all-time January highs, but the repeated rejection of $4,000 support suggests the next big test is to the upside, especially with the Federal Reserve out of the way for now.
The central bank kept rates unchanged again, though the vote was far from unanimous. Higher rates raise the opportunity cost of holding non-interest-bearing bullion, and investors are feeling uneasy, especially with energy-led inflation threatening to keep borrowing costs elevated.
Adding to the anxiety is the new, reserved communication style under Fed Chair Kevin Warsh. The lack of information only fuels uncertainty. Meanwhile, President Donald Trump's opposite approach, particularly his rhetoric on the Middle East as the source of that inflation, is paradoxically having the same effect.
"The environment is a little bit better in terms of support for gold right now after the Fed meeting," Samantha Dart, co-head of global commodities research at Goldman Sachs, told Bloomberg News. Still, "tactically, we are not totally out of the woods yet," she added.
Post-COVID Hangover
But here's the bigger question: does gold still offer the protection investors expect when markets sour? A study from the University of Cape Town's Department of Finance and Tax found that gold's safe-haven and hedging role weakened after the COVID-19 pandemic, particularly against U.S. financial and industrial shares.
By assessing co-movement between commodities and major U.S. sectors, the researchers found that gold's results became sector-specific. According to Associate Professor Chun-Sung Huang, gold's traditional role "quietly deteriorated" after the pandemic.
The metal performed well for energy and consumer-discretionary exposure during Covid, but less so for healthcare and consumer staples. Meanwhile, silver and platinum showed stronger positive interdependence with sectors, lowering their defensive appeal.
Agricultural commodities fared better. Corn and soybeans showed modest safe-haven characteristics, while wheat was less consistent. Livestock, however, lost most of its protective value.
Assessing the Breakout
The daily chart shows the extent of gold's recent volatility. The price corrected by more than $1,600 in a matter of months before finding support. SPDR Gold Trust (GLD) remains down 6.06% year-to-date.
Meanwhile, the Relative Strength Index indicator showed bullish divergence. Price closed lower on July 16, yet the indicator moved higher, showing that bearish momentum is fading.
Looking forward, the first level to overcome is $4,200. But a bigger resistance awaits at $4,375, a level that has flipped from resistance last October to support in March and back to resistance in June.
