August Surge Too Fast! Will Tonight's CPI Trigger Profit-Taking After Gold's Strong Rally?

Gold's strong rally since August is raising market alerts regarding the risk of a short-term correction. Technically, it has entered overbought territory, and tonight's release of US July CPI data could become a key trigger for profit-taking.

Gold futures have risen about 8% this month, recording their best weekly performance since January last week with a 7.1% gain, mainly boosted by weaker-than-expected non-farm payroll data and expectations surrounding negotiations to reopen the Strait of Hormuz.

However, according to CNBC, Bespoke Investment Group pointed out that gold prices closed more than one standard deviation above the 50-day moving average for the first time in 103 trading days, entering the overbought zone—the first time since March 10. Historical data shows that after such signals appear, gold prices fall by an average of 0.22%, 0.34%, and 0.53% in the subsequent week, month, and three months, respectively.

Meanwhile, James Steel, Chief Precious Metals Analyst at HSBC, noted in a report released on August 11 that the structural uptrend in gold prices remains intact, but $4,500 per ounce constitutes a strong resistance level. The market may need to consolidate before making further upward moves, accompanied by some degree of profit-taking. He also warned that if tonight's CPI data fails to show a sufficiently "moderate" reading, it will provide recent bulls with a reason to close positions.

Overbought Signal Lights Up, Technicals Issue Warning

Analysis by Bespoke Investment Group shows that gold prices closed more than one full standard deviation above the 50-day moving average last Friday, marking the first overbought close in 103 trading days. In its Monday report, Bespoke stated, "This is one of the longest consecutive periods without an overbought reading on record. Historically, once an overbought close occurs, subsequent returns are typically negative."

From a historical statistical perspective, in all previous instances where no overbought reading occurred for more than 100 trading days, gold prices fell by an average of 0.22% in the following week, 0.34% within a month, and 0.53% within three months. The largest average decline occurred after 12 months, reaching 0.62%. Bespoke data also shows that in these historical cases, only 37% recorded positive returns after one year.

HSBC's report also noted that the Relative Strength Index (RSI) is at high levels, suggesting that gold prices are showing signs of being overbought, at least in the short term, which could further fuel sentiment for profit-taking.

CPI Becomes Key Variable, "Soft Landing" Data Could Act as Shield

Tonight's release of US July CPI data is the most direct catalyst for the current market. According to the HSBC report, the bank's US economist Ryan Wang expects core CPI to rise 0.21% month-on-month in July, with the year-on-year growth rate slightly declining from the previous 2.6% to 2.5%. HSBC believes that this result "may support but not necessarily drive" further increases in gold prices.

The HSBC report pointed out that if the CPI data fails to meet market expectations of being "sufficiently moderate," investors who recently established long positions will face strong motivation to take profits. The day before, Cleveland Fed President Beth Hammack stated that she believes now is the appropriate time to begin gradually raising interest rates to avoid being forced to implement larger hikes in the future. This statement has already suppressed some of gold's upward momentum, causing it to retreat from above $4,400 per ounce.

Uptrend Unbroken, Long-Short Game Continues Amid Consolidation

Despite rising short-term risks, neither HSBC nor Bespoke denies the medium-to-long-term bullish logic for gold. The HSBC report explicitly stated that the uptrend in gold prices is "structurally still intact." Bulls have achieved a breakout, but $4,500 per ounce is a solid resistance level, and the market needs time to digest gains before breaking through.

The HSBC report also noted that the VIX "fear index" has been sliding continuously since April and is currently around 15%, nearly half of its peak at that time. Typically, a low VIX environment is unfavorable for gold, but HSBC believes that if the low VIX partly reflects market optimism about oil prices falling back to pre-conflict levels, it may not be a negative signal for gold.

Regarding silver and platinum group metals, HSBC believes silver is overvalued and its trend is highly dependent on gold. There is a risk that recent gains will be corrected, though not reversed. Platinum group metals may enter a relatively flat phase after an active summer session, with industrial and automotive hedging buying currently at low levels, limiting upside potential within the month.

Long-Short Power Balance: Positioning Data Shows Bulls Still Dominant

Looking at positioning data, the CFTC report as of August 4 shows that speculative net long positions in gold on Nymex were 22.65 million ounces, an increase of 1.42 million ounces from the previous period. Long positions reached 27.15 million ounces, while short positions were 4.51 million ounces, indicating a clear bull advantage. Net long positions in silver also reached 202.11 million ounces, an increase of 8.07 million ounces from the previous period.

However, it is precisely these elevated long positions that constitute a potential source of selling pressure if CPI data misses expectations. Once the data triggers position unwinding, accumulated long holdings could accelerate price corrections. For investors, tonight's CPI data is not just a macroeconomic signal, but also a stress test of the current resilience of gold bulls.