Gold Forecast: Dip or Danger? Decoding Monday’s Price Pullback

Gold slides despite weaker USD and safe-haven flows
Bearish engulfing daily candle flags near-term downside risk
Support at $2,725 key for near-term directional bias

Summary

Gold stumbled out of the gates this week, falling despite a weaker US dollar, softer bond yields, and rising demand for alternate safe havens like the Japanese yen and Swiss franc. Heavy losses in riskier asset classes may explain the price action, potentially forcing multi-asset managers to liquidate bullion to cover losses elsewhere. This has been seen during past risk-off episodes, often creating short-term weakness in gold prices.

Whether that's the case this time or not, the pullback appears more like a buying opportunity than the start of a prolonged downtrend with medium-term price action and momentum trends still bullish. Add in uncertainty around US trade policy—previously a tailwind for gold—and another test of record highs can't be ruled out in the near term.

Gold: Bullish Bias Retained Despite Price Pullback

Source: TradingView

The daily chart above shows the failed record-high attempt last Friday, with the price stalling above $2,785 before retreating into the close. Monday delivered a big bearish engulfing candle, signalling potential for further near-term weakness.

However, potential doesn’t guarantee outcomes. Recent bearish engulfing candles haven’t consistently led to sustained downside. For now, the key is horizontal support at $2,725 and the uptrend established on December 30. A break below these levels would confirm a bearish bias, but until then, the pullback sets up a decent long opportunity.

If the price cannot break these levels it would generate a decent long setup, targeting another attempt on the record high at $2790. Longs could be stablished ahead of $2725 with a stop beneath for protection, offering favourable risk-reward.

Bolstering the case for longs, RSI (14) remains in a strong uptrend and is not yet overbought on the daily timeframe. MACD continues to confirm the bullish momentum signal, even with the slight turn lower over recent days.

If gold were to break and hold beneath $2725, the near-term bullish bias would be invalidated.

-- Written by David Scutt

Follow David on Twitter @scutty

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