Gold prices have experienced a notable decline this week, with the precious metal retreating to the $2300 per troy ounce level, marking a decrease of over 3.7% since Friday’s closing. The primary catalyst behind this downturn is attributed to a less severe escalation in the Palestinian-Israeli conflict compared to initial expectations earlier this month. Analysts perceive this correction as a welcomed technical adjustment that could potentially transition into a bearish market sentiment.
Last week, gold breached the significant milestone of $2400 per troy ounce on the spot market, encountering substantial resistance at this psychological level. Since the beginning of the week, there has been a notable trend of systematic intraday selling of both gold and silver, irrespective of fluctuations in the stock market or currency movements. Traders seem to be fixated on this development, overlooking broader shifts in risk appetite.
The correction has already pushed the price below the 76.4% intermediate retracement level of the rally from the February lows to the April peak, signaling a broader market adjustment. This contrasts sharply with the shallow correction witnessed in March during a more apparent bull market.
The magnitude of the downturn over the past two days, the most significant in the last two years, cannot be overlooked. On daily timeframes, the Relative Strength Index (RSI) has retreated sharply from overbought territory, indicating an active downward trend. Earlier observations of RSI touching the 85 level at $2100 and $2350 highlighted a divergence between the indicator and the price, serving as a crucial precursor to the current decline.
Nonetheless, the positive outlook remains intact as long as the price holds above $2360, where the 61.8% Fibonacci retracement level is situated. Analysts speculate that gold could potentially rebound after this technical shakeout.
However, if a sell-off persists over the next few days, the price could swiftly drop to $2360. A breach below this level would signal a true reversal. Furthermore, dipping below $2185-2200 within a couple of weeks could raise concerns about a long-term trend reversal, with a potential downside target before the year’s end at $1900.
