- By Pongpat Khamchoo, CMT, CAIA Investopedia is partnering with CMT Association on this newsletter
- The contents of this newsletter are for informational and educational purposes only, however, and do not […]
By Pongpat Khamchoo, CMT, CAIA
Investopedia is partnering with CMT Association on this newsletter. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice. The guest authors, which may sell research to investors, and may trade or hold positions in securities mentioned herein do not represent the views of CMT Association or Investopedia. Please consult a financial advisor for investment recommendations and services
Chart 1: Gold Overextended Move
Gold’s weekly price action indicates the potential for a consolidation phase after a strong rally has driven the market into an overextended condition. The first signal comes from the RSI, which has moved above 75 — a level adjusted from the conventional 70 to better fit the behavior of commodities, which can sustain overbought conditions longer than equities.
However, an overbought RSI alone is insufficient to confirm a short-term top. Confirmation typically comes from a reversal candlestick pattern. When the uptrend remains strong, weekly candles tend to close near their highs. But if a long upper shadow begins to appear, it suggests profit-taking pressure is emerging. Combined with an overheated RSI, this often serves as an early warning of consolidation or sideways movement.
Since early 2024, similar signals(marked by red arrows on the chart) have occurred three times— in early April 2024, late October 2024, and late April 2024. Each time, gold prices entered a sideways correction rather than a sharp decline, indicating that such signals typically mark a technical pause rather than a trend reversal.
Chart 2 : Dollar Index and U.S. 10-Year Yield Fail to Confirm Gold’s Breakout
Gold’s recent breakout to a new high in early September was not confirmed by its usual macro counterparts — the Dollar Index and the U.S. 10-Year Treasury Yield. A comparison across the three panels shows that while gold surged to record levels, both the dollar and bond yields held their respective supports, signaling a lack of alignment behind the move.
The Dollar Index remained above key support near 97, and the 10-Year Yield stayed firmly above its March low around 3.86%, even as the Federal Reserve delivered its first rate cut of the year in September.
Historically, gold tends to advance most strongly when both the Dollar Index and long-term yields are trending lower, given their inverse relationship with the metal. The fact that neither indicator confirmed the breakout suggests that this rally may be driven more by short-term positioning than by macro fundamentals — a setup that warrants caution for potential consolidation ahead.
Chart 3 : Inflation Fails to Explain Gold’s Current Rally
Beyond the Dollar Index and the U.S. 10-Year Yield, inflation metrics also fail to justify the strength of gold’s latest rally.
When dividing gold price by the CPI Index, the current Gold/CPI ratio stands near 13x, far above the levels seen during the two prior inflation-driven gold peaks — around 8x in both 1980 and 2011.
· In 1980, gold surged amid runaway inflation from the oil shocks of the 1970s, double-digit CPI readings.
· In 2011, gold spiked again during the post–Global Financial Crisis era as the Federal Reserve launched multiple rounds of Quantitative Easing (QE), driving real yields deeply negative and fueling inflation expectations.
Summary – Multiple Non-Confirmations Signal Short-Term Caution
Gold’s rally is showing signs of exhaustion on three reasons:
1. Technically overextended — RSI overbought with potential reversal candles forming.
2. Lacking macro confirmation — neither the Dollar Index nor bond yields are validating the move.
3. Unsupported by inflation — Gold/CPI ratio is at record highs despite cooling inflation.
Taken together, these factors indicate that while the long-term uptrend remains intact, the short-term risk–reward has shifted toward consolidation rather than continuation.
Pongpat Khamchoo, CMT, CAIA is a CMT charterholder and guest contributor to Investopedia’s Chart Advisor. He has more than 16 years of market experience and won AsiaMoney’s Best Technical/Quantitative Analyst award in 2023. He currently serves as Head of Technical Analysis at Yuanta Securities (Thailand).
Shared content and posted charts are intended to be used for informational and educational purposes only. CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. CMT Association does not accept liability for any financial loss or damage our audience may incur.
