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By: David Scutt, Market Analyst
RSI 14 on gold has pushed back above 50 and MACD has crossed higher in positive territory, two readings that show gold breakout momentum building after a brutal selloff. Gold has also cleared the downtrend that defined that decline, so price and momentum are finally pointing the same way. That matters because the two markets that drove gold lower, the U.S. dollar and Treasury note futures, are showing signs of turning at the same time. The real question for traders is whether the breakout has enough support behind it to stick.
David Scutt, StoneX Media Senior Market Analyst, spent more than a decade as an FX spot, forwards and money markets dealer, managing interest rate and liquidity risk before moving into market analysis. He now produces technical and fundamental analysis across FX, commodities and equity indices, with an emphasis on market education, strategy and swing trading.
Gold breakout momentum is building on two fronts. David Scutt points out that "RSI 14 has also moved above 50", putting gold's momentum back on the bullish side after the sustained selloff. MACD has turned up alongside it, and together the two readings are "suggesting bullish momentum is also building". For self-directed traders, that matters because a breakout from a downtrend carries more weight when momentum indicators move in the same direction as price. Gold has already cleared the downtrend that defined its decline, so the chart and the indicators are now telling the same story. Even so, momentum readings describe conditions rather than guarantee outcomes, which leaves the durability of gold's breakout as the open question.
"It doesn't guarantee a reversal, but if the break sticks, it could provide some relief for gold," Scutt says of the U.S. dollar, which has broken the uptrend that carried its strong rally. The U.S. dollar's RSI 14 recently reached 76.8, ranking in the highest 1.5% of observations since 2013, before rolling over, and gold has held a strong inverse relationship with the U.S. dollar over longer timeframes. Treasury note futures are telling a mirror-image story, having fallen below their 2023 lows to register some of the most oversold readings since 2016 before trading volume surged "with noticeable downside wicks suggesting buyers have been stepping in at lower levels". Gold's link to Treasury note futures has been less consistent over time, but its correlation strengthened dramatically to plus 0.89 over the past month, tying the two markets unusually closely. As a result, gold's momentum signals do not stand alone, because the breakout's staying power depends on whether the U.S. dollar keeps fading and Treasury note futures keep finding buyers. Neither turn is confirmed yet, and Scutt is clear that it is too early to call a bottom in Treasury note futures.
--- Written by Frédéric Guétin, StoneX Media Producer
--- Expert: David Scutt, StoneX Media Senior Market Analyst
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