Gold: End of Correction or New Downturn?
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Gold
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Gold has lost more than 6.5% from its early February highs, correcting the November-January rally. Now it’s time to decide on the next trend. The coming days should show whether we will see a new wave of growth in gold or whether the decline will continue.
Gold Daily Chart
From the beginning of November to the first days of February, gold gained more than 21%. The February declines stabilised the price at 61.8% of the initial rally, a classic retracement. This pattern suggests buyers are returning and opens the potential for a rally to $2170 (161.8% of the initial rally). A more conservative view suggests that the path to new highs will only open up after a sharp rise above previous highs at $1960.
Another indicator, the Relative Strength Index (RSI) on the daily timeframe, suggests that there is still room for a decline. According to this indicator, gold has been overbought for most of January and has yet to reach the oversold zone.
On the weekly timeframe, the reversal in February coincided with a touch of overbought conditions, and so far, the indicator remains above 50, indicating the potential for further declines.
Gold Weekly Chart
In addition, we note that mid-month gold fell below the 50-day moving average, which has worked well as a short-term trend indicator over the past year. When gold breaks below this moving average without any resistance from buyers, it looks like a signal that bearish sentiment is prevailing.
It is worth being prepared for the fact that gold’s decline has paused but not ended. Up to the $1775-1800 area, we do not see any significant barriers to the fall. A break there would also allow the overbought RSI to correct fully. Gold has reversed several times near $1800, especially last year.
