Gold prices experienced a sharp decline last Friday, breaking through key technical support levels and signaling a significant weakening of market momentum, with short-term downside risks intensifying. Market analysts have assessed that further price corrections are possible. However, institutional views show clear divergence, with most professionals viewing the near-term volatility as a normal technical adjustment. The core drivers for gold's medium to long-term appreciation are seen as unchanged, and the pullback is instead viewed as a strategic entry opportunity.
Technical Picture Weakens, Increasing Near-Term Pressure
In a market report issued on Monday, FOREX analyst Fawad Razaqzada stated that the concentrated selling activity on Friday severely damaged gold's technical structure, with the price decisively breaking below the critical long-term support of the 200-day moving average. He noted that referencing the historical pattern from September 2023, when the price broke below this average it subsequently fell by 5%, suggesting a high probability that the current breakdown will lead to a continuation of the weak trend.
Razaqzada analyzed that gold's previous inability to sustain a position above the $4,500 per ounce level led to waning bullish momentum, ultimately triggering a deep correction. Breaking below the key moving average has further accelerated the downward trend. The primary support level is now identified at the long-term ascending trendline around $4,230 per ounce. A breach of this level would leave scant support below, potentially leading to a test of the year's low near $4,100 per ounce, with a move towards the significant psychological $4,000 per ounce level not out of the question.
The market is awaiting the release of US CPI data on Wednesday. Should core inflation remain stubbornly high at 2.9% year-on-year, it would reinforce expectations for prolonged high interest rates, boosting the US dollar and continuing to pressure gold prices.
Divergent Institutional Views: Short-Term Caution vs. Medium-Term Optimism
Simon-Peter Massabni, Head of Business Development at XS, expressed a pessimistic view on gold's short-term trajectory. He highlighted the resilience of the US labor market and persistently high inflationary pressures as factors supporting the Federal Reserve's maintenance of high interest rates, which in turn strengthens the US dollar and creates sustained headwinds for precious metals. He believes that barring a major geopolitical 'black swan' event disrupting the global financial landscape, gold is likely to maintain a weak-to-consolidating trend in an environment of elevated US Treasury yields and diminished expectations for rate cuts.
Concurrently, he clearly stated that these short-term negative factors do not alter gold's medium to long-term investment value. He pointed to the ongoing diversification of foreign exchange reserves by global central banks, their continued accumulation of gold to reduce reliance on the US dollar, and the combination of high global debt, fiscal pressures across major economies, and persistent geopolitical uncertainties. These multiple core positive factors, he argues, will provide long-term support for gold prices.
Long-Term Fundamentals Solid, Short-Term Pullback Presents Opportunity
Jeff Sarti, CEO of Morton Wealth, stated in an exclusive analysis that the market should not over-focus on short-term gold price fluctuations. He emphasized that the core fundamental backdrop—including a globally accommodative fiscal and monetary policy environment and persistent inflationary pressures—has not reversed, and gold's long-term value preservation logic remains robust.
He added that for investors with an underweight allocation to gold, this price correction represents a high-quality opportunity for phased entry. The core strategy of holding gold assets for the long term does not require adjustment. In summary, while gold currently faces clear short-term pressures from technical breakdowns and high interest rates, leading to a defined correction phase, its medium to long-term bull market foundation remains solid, underpinned by multiple supports including geopolitical risks, central bank purchases, and inflation-hedging demand. The current short-term decline is viewed as a healthy adjustment rather than a trend reversal.
Comments