Gold – pullback towards breakout level

After the price of gold rose sharply by $446, or around 22.5%, from its low point of $1,985 on February 14th in two months, the rally has stalled significantly in the last three weeks. Starting from the new all-time high at USD 2,431, quick profit-taking in the form of two large downward thrusts recently caused a hangover mood.

Although the price of gold is still well above its level at the start of the year (US$2,063), at around US$2,305, there are increasing signs of a trend reversal and therefore also of an extensive correction.

What is noticeable is that the enthusiasm for buying in China has recently waned significantly and sellers in particular are currently setting prices on the Shanghai Gold Exchange. This also makes it easier for the paper jugglers on the western gold exchanges.

Of course, for the sake of honesty, it must also be mentioned that after the six and a half month rally from $1,810 to $2,431 (+34.3%), a correction would only be healthy and completely normal.

The seasonal component also provides a red light, because statistically speaking, the precious metals sector almost always goes into a major correction from late spring onwards. If this is based on previous breakout rallies, a setback to the breakout zone between around 2,075 and 2,150 US dollars would be expected in the coming weeks. 

Gold in US dollars, daily chart from May 3, 2024.

After the price of gold had surged by $446 or 22.5% within two months, the first slap from the bears came quite suddenly late in the afternoon on Friday, April 12th.

Quickly and without resistance, the price of gold slipped by almost $100 within just four hours to $2,334.

Nevertheless, the bulls were able to strike back again in the following trading week. However, the new all-time high was slightly missed at $2,416 . The following Monday, the bears countered with the next attack and purposefully drove gold prices below the round mark of $2,300 at $2,291.

Despite several attempts, the gold price has not yet been able to recover from this attack.

Instead, the countermovement failed at $2,352 and in the next step led to falling prices again and a small double low at $2,285.

The daily stochastics are now clearly oversold and an upward reaction would not be surprising. So far, a possible bottom formation in the area around $2,280 looks rather weak and the bulls appear weak and discouraged.

The US unemployment figures published today caused only a brief twitch in the gold market, despite weaker than expected data. Instead, with a new low at $2,277, the bears have finally taken the gold price under their control and are now likely to do everything they can to continue the correction towards breakout levels between around $2,075 and $2,150 in the coming weeks.

Summary: Gold - pullback towards breakout level

The price events of the last three weeks now clearly indicate the beginning of a correction phase on the gold market. Although our price target of $2,535 was slightly missed and silver hasn't really performed well so far, the way the gold price has behaved since mid-April makes us extremely skeptical.

If the rally that began in October has reached its high point at $2,431, the next few weeks are likely to be marked by a nasty correction. In the past, such corrections sooner or later led back to the breakout level, which this time is in the range between $2,075 and $2,150.

Even in view of the unfavorable seasonal component until July, we now just have to wait patiently.