Precious metals have taken a notable hit, with silver leading the way and gold following closely behind. At one point, silver was down around 10%, while gold also suffered a sharp pullback in what turned out to be a fairly aggressive move across the complex. Given that there was no news out at the time, the moves look technically driven, and doesn’t necessarily change my neutral gold forecast for now. Let me explain.
Why did gold and silver take a sudden plunge?
What makes this move interesting is the context in which it happened. For most of the week, gold and silver had been trading in relatively narrow ranges, especially when compared to the volatility we’ve seen in recent weeks. Markets were essentially coiling up, and when that happens, it usually means one thing: stop orders start building on either side of the range.
In gold’s case, there was a heavy cluster of stops sitting just below the psychological $5,000 level, while another pocket of liquidity was resting above $5,100, which has been acting as a key resistance zone. At the same time, we had a stronger-than-expected US jobs report midweek, and the US dollar managed to bounce back slightly. That combination took some of the shine off gold, as improving economic data reduced the urgency for safe-haven positioning.
As momentum began to fade, gold struggled to extend its rebound rally from earlier in the month. And given the size of the sell-off we saw at the end of January, it was always likely that gold would run into selling pressure each time it approached major resistance levels.
We saw this play out clearly last week around the $5,000 mark. Gold was rejected from that area, sold off, and eventually found a base near 4,650 before staging a strong bounce. This week, the story repeated itself, but this time around the $5,100 level. Once again, that resistance held, and today we saw a classic liquidity run below $5,000, triggering a cascade of stop losses and accelerating the downside move.
So, does this mean gold will continue heading lower?
From a broader perspective, this sudden drop doesn’t automatically mean that gold is about to enter a sustained downtrend. However, it does increase the likelihood of continued volatility in the near term. The market has now cleared out a large pocket of downside liquidity, and the next move will depend on how price behaves around key technical levels.
The main level to watch now is $5,000. If the price of gold can reclaim that level and hold above it on a daily closing basis, that would be a constructive signal. In that scenario, the market could start targeting the upper end of the range again, with a potential run on stops above $5,100.
On the other hand, if gold fails to recover and closes the week on a weak note, the probability of further downside increases. That risk will be amplified by the broader macro backdrop, if US data starts coming in stronger, or the dollar stabilises further, while geopolitical tensions ease. All of these factors will reduce demand for defensive assets like gold.
Gold forecast: Key support levels to watch
In terms of support, the $4,880 to $4,900 zone is now critical. This area needs to hold if gold is to stabilise. A clean break below it could open the door to a move towards $4,800, then $4,700, and potentially even $4,500, which stands out as the key longer-term support level and could come back into focus if selling pressure persists.
Overall, today’s sell-off looks to have been driven more by technical factors than fundamentals, and as such, the gold forecast remains neutral for now. That said, momentum has clearly been weakening in gold over the past few sessions, likely reflecting the shift in macro sentiment following stronger US labour market data. For now, the message from price action is clear: gold remains highly sensitive to liquidity flows, and traders should be prepared for sharp, two-way moves around these major psychological levels.
Could that have been a delayed NFP reaction?
Yesterday’s strong labour market numbers were surprising, but more surprising was how the dollar failed to hold onto its gains. Unemployment fell to 4.3%, payrolls beat expectations by a wide margin, and wage growth surprised on the upside. On the face of it, that should be more than enough to offset the roughly 862k downward payroll revisions for 2025, especially given the market was already expecting around 825k.
More good data will be needed, and probably in fairly quick succession to sustain a dollar recovery. Today’s jobless claims data disappointed, but that was unlikely to move the needle much anyway. It may take an upside surprise in tomorrow’s CPI to generate more durable support for the dollar.
So how does one trade gold?
We saw a quick drop in gold prices after it had risen to test resistance right at around the prior inflection point of $5,100 area. We saw gold try to break higher several times in the last couple of days, but each time it ran into offers. Now that we have broken below the $5K level, things will get interesting again. Traders need to be extra vigilant, especially when chasing these kind of moves. It could be that that gold has already topped, or this dip may turn out to be a bear trap, before we see trend resumption. It is very difficult to say which will be the case at this stage. The bulls now need to clear $5K level and ideally that $5,100 resistance to re-establish control. Or they can wait for things to calm down after this sudden dip and await a new bull signal at lower levels. The bears will be eyeing to get onboard at resistance near $5K level in the event of a bounce later on today or week. The key point when trading gold in this kind of environment is to ensure you have clear targets in mind, trade from level to level and always ensure adequate risk management to avoid any disastrous situations to your account.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
