In this week’s edition of Technical Tuesday, we are looking at the chart of gold following the metal’s recent breakdown. The key question here is that have we seen a top or this merely a blip, before the precious metal reverses course. For what it is worth, I think it is far too early to turn bearish on the longer term gold forecast, even if we have seen some short-term signs of a bearish reversal.
Bearish momentum keeps bulls at bay
At the start of this week, the bearish momentum on gold has gathered pace following last week’s reversal from those historic, extremely overbought levels. We’ve now seen a breakdown below some key support areas — most importantly, that psychological $4,000 mark. That move has triggered a wave of technical selling and liquidation of long positions.
Now, this reversal hasn’t happened in isolation. It’s come right as markets anticipate some form of de-escalation in the US–China trade war and further rate cuts from major central banks – and that’s lifted risk sentiment across the board. The S&P 500, Nasdaq 100, as well the FTSE 100 and several other major indices have all pushed to new all-time highs, and naturally, that’s taken some shine off safe-haven assets like gold. We think the German DAX index could be next in surging to new highs.
Risk-on mood vs safe-haven demand
As mentioned, the drop in gold has coincided with renewed optimism in trade talks between the US and China. President Trump’s been striking an upbeat tone – recently saying he “really feels good” about a deal. Reports suggest that China may resume soybean purchases and ease restrictions on rare-earth exports, while Washington could scale back some recent tariff threats. Now, while that’s certainly improved market mood, many analysts remain sceptical that the bigger issues — like national security and tech competition — are anywhere near being resolved. Still, for now, traders have embraced this risk-on environment, and that’s pulled demand away from gold as a hedge.
Fed meeting puts gold forecast in focus
Looking ahead, as well as the upcoming Trump-Xi meeting, all eyes will also be on the Federal Reserve meeting on Wednesday. A rate cut is almost a given at this point, but the key question is: will the Fed signal more cuts are coming? If they do, that could pressure the dollar, and we might then see a rebound in bonds and gold. So, the Fed meeting could end up putting a short-term floor under gold prices, depending on how dovish their tone is.
Can gold reclaim $4K handle?
Technically, the trigger for this latest drop was pretty clear. Once last week’s low at $4,004 broke, a cluster of stop-loss orders got hit — and that sent gold tumbling in a short space of time. We seen prices tumble in excess of $100 from that level before finding some support – for now – around the $3895 level.
So, the real question now is this: have we finally seen a top in gold prices after this incredible run to record highs?
Personally, I’d wait to see what happens next before calling it. If prices can reclaim that $4,000 level and hold above it, that would be a strong bullish signal, suggesting the long-term uptrend remains intact.
But if gold continues to trade below $4000 for the next couple of days, then it’s fair to say a short-term top might be in place, and we could see further selling until prices look attractive again… or until risk sentiment turns, and investors start looking for safety.
In summary
So, in short — gold’s facing pressure from risk-on sentiment, a technical breakdown, and a strong equity rally. But with the Fed on deck, we might still see a shift in tone that gives the bulls something to work with. Let’s see how things play out. The gold forecast may yet improve, even if it doesn’t look like it at the moment.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
