Gold Price Analysis: Will Gold Reach $2640 Soon?
The gold market started the week reaching new highs and ended with a 1.3% gain, despite a 2% dip due to profit-taking following the Fed’s rate decision. The unexpected loosening of monetary policy and forecasts of further rate cuts have reignited appetite for risk assets, but the recent turnaround in government bond yields has set a more cautious tone.
Typically, a fall in government bond yields increases interest in gold as an alternative for capital preservation. However, this inverse correlation has started to fail this year, with gold prices and yields rising simultaneously. This could indicate that gold is nearing a peak, especially as the US dollar remains strong against major currencies and rising bond yields create an unfavorable environment for gold.
Technically, the price of gold seems to be heading towards the $2640 mark, which is the 161.8% level from the initial upward momentum in August 2018 to the peak in August 2020. Historically, major turning points in gold have occurred around the 200-week simple moving average, which is now significantly below the current price. This suggests the potential for a correction that could bring the price down to $2000 within a year or two.
While overbought conditions in gold may not imply an immediate reversal, traders should be wary of signs of growth exhaustion that could lead to a sharp correction. The possibility of a massive short squeeze could still drive the price higher, but caution is advised.
In conclusion, the gold market is currently at a critical juncture, with potential for both further upside momentum and a significant correction. Traders should closely monitor key technical levels and market indicators to navigate the uncertainty ahead.
By FxPro Analyst Team
