Uncover the Truth Behind Gold’s Recent Pullback and What It Means for Your Investments
Gold prices took a hit in Asia trade as the market rebounded, fueled by concerns about US technology stocks and questions about AI investment. This setback comes after gold closed higher for the fourth consecutive week but fell short of reaching the record high set in October 2024.
Last week’s market activity hinted at a decrease in safe-haven demand, offset by rising inflation fears and a weaker dollar supporting precious metals. As major central bank meetings loom ahead, the trajectory of gold remains uncertain.
While gold may be on track to reach a new record high, technical indicators suggest overbought conditions, potentially signaling a reversal. Despite this, cautious investors should wait for a clear reversal signal before considering shorting gold.
In recent weeks, gold has thrived despite the dollar’s gains and rising bond yields. Factors such as inflation hedging and safe-haven demand amid geopolitical risks have supported its rise. However, with easing trade tensions and market fears, demand for safe-haven assets like gold may diminish, leading to a possible retracement.
Although the historic negative correlation between gold and the dollar has weakened, uncertainties surrounding inflation persist. Trump’s protectionist measures may drive prices up, deterring the Federal Reserve from cutting rates. Central bank meetings in the upcoming week will shed light on their economic outlook and potential rate cuts.
Technical levels to watch on gold include short-term support at $2750 and significant support around $2710-$2725. A retest of the all-time high at $2790 is a bullish target, but caution is advised as monthly and weekly charts show overbought conditions.
The monthly gold chart reveals ongoing overbought technical conditions, while the weekly chart points to a potential negative divergence with price. Such signals indicate waning momentum, urging bearish traders to await a trend reversal before shorting gold.
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Analysis:
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