The Market Still Has Room to Rise, but Further Gains Are Likely to Narrow Significantly

Summary:

Gold may still have room for one final push higher, potentially driven by short-covering and stop-loss orders. However, as short positions around $4,476 are gradually liquidated, the marginal upside momentum is likely to weaken significantly. Against the backdrop of the risk that CPI could come in above expectations, the risk-reward profile of chasing gold at elevated levels is deteriorating. Therefore, the preferred strategy is to wait for signs of a reversal after a further upside move and look for opportunities to sell into strength.

SELL XAUUSD

EXP

PENDING

4475.00

Entry Price

4050.00

4580.00

4403.37 +34.68 +0.79%

Pips

PENDING

4050.00

Exit Price

4475.00

Entry Price

4580.00

Fundamental

The main focus today is the July CPI report from the U.S. Department of Labor. The market currently expects headline CPI to rise 0.2% month-on-month and 3.4% year-on-year in July, compared with a previous reading of -0.4% month-on-month and 3.5% year-on-year. Core CPI is expected to rise 0.2% month-on-month and 2.5% year-on-year, compared with previous readings of 0.0% and 2.6%, respectively.

U.S. inflation data in June came in generally below market expectations, prompting investors to assess whether this signals the beginning of a renewed disinflationary trend or was merely a temporary deviation.

We believe the current institutional consensus may contain some degree of bias and could potentially be underestimating the magnitude of the July inflation rebound. One variable that deserves particular attention is oil prices.

Throughout July, WTI crude oil prices surged from around $67 per barrel to $92.50 per barrel, representing an increase of more than 37%. In contrast, oil prices moved in the opposite direction in June, with WTI falling from approximately $92.50 to $67 per barrel.

In other words, the sharp decline in energy prices in June provided a significant drag on headline inflation that month. However, in July, oil prices not only failed to extend their decline but instead staged a strong rebound. This sharp shift in energy prices should, in theory, provide a meaningful upward contribution to July headline CPI.

Therefore, if the market continues to price in line with the current institutional consensus, there is a risk that the actual July CPI reading could come in above expectations. Should inflation rebound more strongly than anticipated, expectations for the Federal Reserve's future policy path could be rapidly repriced, potentially pushing the U.S. dollar and Treasury yields higher and putting pressure on non-yielding gold.

The Market Still Has Room to Rise, but Further Gains Are Likely to Narrow Significantly_1

Technical

Gold prices continued to rise on Wednesday, breaking back above the 50-day moving average, while remaining above the 100-day moving average. The short-term bullish structure remains intact. However, we believe that although gold still has room to move higher, the magnitude of further gains is likely to narrow significantly.

There may still be one final upside move, with one important factor being the potentially concentrated pool of short stop-loss orders around $4,476.

Some medium-term short positions around $4,385 have already been absorbed by the market, while $4,476 could represent an important defensive level for the remaining medium-term shorts, as well as a key stop-loss level within the current medium-term bearish structure.

If gold moves closer to $4,476 and triggers a significant amount of short stop-loss orders, the market could experience a noticeable short squeeze in the short term, potentially pushing gold toward higher levels.

However, it is important to note that the triggering of short stop-loss orders does not necessarily mean that a new medium-term uptrend is being established. On the contrary, once short covering is completed, incremental buying pressure supporting further gains could quickly diminish, causing bullish momentum to weaken.

Therefore, the area around $4,476 could actually become an important zone for assessing whether gold's bullish momentum is beginning to exhaust. If prices spike and then retreat, form a false breakout, or fall back below key support levels, the market could gradually develop a high-level reversal structure.

From a trading perspective, the safety margin for chasing the upside has clearly deteriorated. Waiting for gold to rally further and then looking for short opportunities may offer a more attractive risk-reward profile.

Trading Recommendation

Direction: Sell

Entry: 4,475

Target: 4,050

Stop Loss: 4,580

Strategy Valid Until: September 11, 2026, 23:55

Support: 4,356, 4,339, 4,312

Resistance: 4,435, 4,476, 4,481

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