Key Points
- Gold is rallying to test $5,000 per ounce.
- The Dollar Index is falling steeply.
- The new Fed Chair is unlikely to hike rates before the November midterms.
- But crude oil may spoil the party.
Gold has rallied to $4,635 per ounce and looks set to test resistance at $5,000, but will it have enough momentum to carry further?
The Gold rally was caused by a dovish FOMC meeting at the end of July. The bond market had expected a Fed rate hike to establish the new Fed Chair’s hawkish credibility. Warsh disappointed, with strong words but no action. The 1-Year Treasury Bill rate broke its 6-month trendline, signaling a shift in expectations.
Also, the Dollar Index broke support, signaling a test of primary support at 97.
The last steep rally in Gold was after a dovish keynote speech by former Fed Chair Jerome Powell at Jackson Hole on August 22 last year. Gold climbed $2,000 per ounce within 6 months.
The first divergence between Gold (orange above) and the S&P 500 index (blue) occurred shortly after President Trump’s inauguration, when he launched his tariff onslaught on trading partners. The second massive divergence after Powell’s speech was followed by a sharp fall starting in March 2026 after the attack on Iran forced some countries to sell reserves, including Gold, to provide liquidity. Selling will likely resume only if there is another spike in oil prices.
A breakout of Brent Crude above $100 per barrel would be cause for concern.
Conclusion
We don’t expect the new Fed Chair to hike rates before the November midterms, which should give Gold plenty of time to break resistance at $5,000 per ounce, setting off a fresh advance.
The wild card is crude oil prices. A spike in Brent Crude above $100 per barrel could trigger further selling of Gold reserves by major oil importers to defend their currency, and Gulf states to cover lost export revenues. High energy prices could also force the Fed Chair to hike rates.
We are convinced that Gold will eventually reach $10,000 per ounce, but are unsure whether that will be in one year or ten years. Trends seldom travel in a straight line, as the first half of this year has just reminded us.
Acknowledgments
- CNBC: Brent Crude ICE May’26 Futures
- CNBC: 1-Year Treasury Yield
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.