Gold is confronting one of its most significant technical tests since the bull market commenced in 2024. Following a sharp sell-off triggered by excessively crowded momentum trades, the price of gold has retreated to the vicinity of the steep trendline established since last September and tested the 50-day moving average during an overnight mini flash crash.
According to analysis from The Market Ear, the gold price must stabilize around $4,600 (plus or minus $50) to maintain its constructive market structure. The current decline is primarily attributed to prior excessive "Fear Of Missing Out" (FOMO) trading and a lack of downside risk management. The Relative Strength Index (RSI) has plummeted from 91 to 46, indicating a rapid shift from extreme overbought conditions to the most oversold level seen since August of last year.
However, vulnerabilities in the market structure remain a concern. Citigroup Research points out that gold holders have accumulated paper profits of approximately $20 trillion over the past three years, while the inflows driving the recent rally amount to only about $1 trillion. This implies that profit-taking from just 5% of these holdings would be sufficient to offset all global physical demand. This massive pool of paper profits hangs over the gold price like a "Sword of Damocles."
Despite short-term support, institutional outlook on the medium-term prospects has turned more cautious. Citigroup maintains its $5,000 per ounce target price for the next 0-3 months but anticipates that gold will retreat to $4,000 by 2027, a potential drop of 20%, as geopolitical risks subside in the second half of 2026 and Federal Reserve independence is reaffirmed.
From a technical perspective, gold is in a zone it must defend in the short term. The Market Ear notes that since the bull market began in 2024, the gold price has consistently demonstrated solid support and rebounding capability at the 100-day moving average. The immediate focus is on the $4,600 level; if the price is forced below this, the next key observation point would shift down to the 100-day moving average around $4,250.
Market participant sentiment is being tested. Many traders hope to close their positions at breakeven during the latest sell-off, but this exposes the fact that most participants lack a genuine risk management framework. Analysis indicates that when trading strategies fail, many default to "hope," whereas the primary objective in trading should be to avoid significant drawdowns, not merely to be proven correct on direction. Furthermore, the subsequent performance of Shanghai gold futures will be an indicator worth watching closely.
Citigroup's research reveals the current, highly imbalanced structure of the gold market. The core driver of the price surge from $2,500 to $5,100 was capital allocation by investors (excluding central banks), totaling approximately $1 trillion. In contrast, the physical gold market is too small relative to global wealth to accommodate large-scale asset allocation shifts.
Looking ahead to the medium term, several geopolitical and economic risk factors supporting gold prices are expected to ease in the second half of 2026. Citigroup assesses that roughly half of the risk factors supporting gold allocations will dissipate within the year. The bank forecasts a Q1 2026 price of $5,000, followed by a quarterly decline: Q2 at $4,800, Q3 at $4,400, Q4 at $4,200, with an annual average projected at $4,600.
In its scenario analysis, Citigroup views a retreat to $4,000 per ounce by 2027 as the base case scenario (60% probability). In contrast, a bull scenario (20% probability) could see prices reach $6,000, while a bear scenario (20% probability) might drive prices down to $3,000. Additionally, historical experience suggests that during significant US stock market corrections caused by an AI bubble burst or an economic recession, gold often declines first, adding an extra layer of risk consideration for investors.
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