Gold Outlook: Dead Cat Bounce Risk Builds Near Highs

Gold’s rebound from 4,700 has been impressive, but price action near record highs suggests bulls may need to tread carefully.

Last week I was looking for gold to extend its bounce after it appeared to find support around 4,700. While I did not have a specific upside target in mind, this week’s price action suggests bulls may want to tread carefully.

The US CPI report is also due for release, which could deliver a bearish knock-on effect for gold if it comes in even slightly hotter than expected.

View related analysis:

Gold Futures (GC) Technical Analysis

Gold bulls have enjoyed a 16.3% rebound from the February low. Yet volatility is clearly declining as prices rise, suggesting bulls may be running out of steam. Gold futures volumes have also fallen throughout the rally, hinting that a corrective move could be brewing.

However, a deeper correction would require gold to take out the February low and extend the decline from the all-time high. If that were to occur, it could suggest we are witnessing a classic dead-cat bounce.

Source: CFTC, COMEX, LSEG

Gold Pullback Levels: VPOC 4,943 and 4,800 Handle in Play

For now, my base case is that gold holds above the February low, although momentum may soften in the near term. I do not see a catalyst bearish enough to trigger another sharp leg lower, and futures positioning suggests the selloff was driven more by long capitulation than aggressive short initiation.

Notice that the rally has stalled around the low of the spinning top formed at the record high. Gold traders are clearly watching the 5,126 level, and a break above it could pave the way for a move towards 5,270. However, I will be on the lookout for a bearish reversal candle on the daily chart or a swing high on the intraday timeframes, targeting at least the weekly VPOC (4,943) or the 4,800 handle.

That said, I suspect bulls are waiting on the sidelines to buy such dips and rejoin the broader uptrend. If so, that could limit gold’s downside and keep prices comfortably above the February low near 4,400.

Gold Futures Positioning | COT Report

Futures traders have been relatively cautious on gold’s rally since net-long exposure peaked in September 2024. While bullish exposure began to rise as prices surged towards $5,000, there has been a notable wave of long covering now that prices have tumbled and volatility has spiked.

Net-long exposure has fallen by around 80k contracts over the past two weeks, marking its fastest two-week decline in nine years. While gross shorts have perked up slightly, they remain lower overall – highlighting that the selloff is predominantly a function of long liquidation rather than aggressive new short selling.

That could help keep a layer of support under gold prices, even if price action is beginning to hint at a deeper pullback.

Source: CFTC, COMEX, LSEG

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.