Gold Rally Faces Sustainability Test as Second Weekly Decline Raises Concerns

Gold's recent price action has raised concerns about its rally sustainability as it posted its second consecutive weekly decline. According to Mark Mead Baillie, gold traded as low as $4,329 on Wednesday before rebounding to settle at $4,477 on Friday, resulting in a net weekly loss of 0.6% (27 points). This decline has overshot the previously identified support zone between $4,509 and $4,366.

Historically, a third consecutive down week would likely signal the end of gold's parabolic long trend for the decade-to-date. However, Baillie suggests that the past two down weeks might be a pause rather than a reversal.

Relative to its BEGOS Markets smooth valuation line, gold remains above the metric, having dropped 9.0% (426 points) from $4,755 on August 25 when valuation was $4,175. Currently, gold is still 119 points above the valuation line of $4,358.

The economic barometer was buoyed by August employment data, with net payrolls increasing by 162,000, four times expectations, and July's figure revised upward from contraction to growth. However, ADP's measure showed a slowdown in August private job growth compared to July and missed consensus.