Gold short squeeze enters second phase as $4,500 resistance looms

Gold traded at $4,397.10 an ounce, up 0.7% intraday, after a bullish 21-day and 50-day moving-average crossover confirmed the short squeeze's second phase.

Gold fund inflows reached their largest weekly total since January, according to Bank of America data, while Asian exchange participation jumped to about 50 percent from single digits, Goldman Sachs' Ankush Gupta said.

Gold is again tracking Federal Reserve rate expectations and Japan's ultra-long yields, a relationship that decoupled during the earlier rally. The CME FedWatch tool put the probability of a September rate hike at 30.8 percent after US retail sales fell 0.6 percent in July against a projected 0.1 percent gain.

Gold touched an intraday high of $4,416.43, with $4,450 resistance ahead of the $4,500 mark and support at $4,310. The Fed's July meeting minutes, due Aug. 19, will guide the next move.

Macro Signals Return as Gold Re-Couples With Rates

Gold is again responding to macro variables, a shift analysts read as a new phase. The metal's correlation with Fed rate pricing has reached near-perfect sync, per Goldman Sachs data, and it has resumed tracking Japan's ultra-long yields after that relationship broke during the earlier rally. Analysts describe gold as the only true all-asset hedge, with the re-coupling providing fundamental support as global rate expectations swing and Japanese bond-market pressure persists.

Chinese Capital Drives the Rally, Western Longs Return

Gupta cited clear evidence that Chinese capital is leading this metal rally, with Asian exchange participation jumping from single-digit percentiles to about 50 percent. That inflow forced short covering and pushed prices in an unusually smooth, near-linear advance. Western active longs are now returning, and Bank of America data shows gold fund inflows hit their largest weekly total since January. Gupta said positioning is not yet overcrowded, though the initial "spring compression" phase has largely released, leaving more two-sided risk ahead.

$4,500 Resistance and the Options Play

Gupta set $4,500 as the key resistance, expecting profit-taking pressure near that level. For investors still wanting upside exposure, he favors call spreads and digital knockout structures, which he said are cleaner and more efficient given the repriced volatility skew. Despite the sharp rally, gold's implied volatility has stayed relatively flat, keeping option participation costs reasonable. Commodity trading advisers remain net short into the squeeze, leaving them exposed to forced buying if prices keep climbing, though convexity is no longer one-directional.

Silver is tracking gold higher, with spot silver facing key resistance at $72, a break above which would open a move toward $89, according to technical analysis. Gold at $4,397.10 sits below the 200-day moving average in the $4,500 area.

This article is for informational purposes only and does not constitute investment advice.