Commodities Analysis by Fawad Razaqzada covering: XAU/USD, Gold Futures. Read Fawad Razaqzada's latest article on Investing.com
Despite Friday's record high, gold faced selling pressure later, signaling possible short-term losses.So, there is a risk that the yellow metal could turn lower and continue its sell-off that began on Friday, when its latest rally to a new all-time high was met with strong selling in the second half of the day, resulting in a bearish-looking price candle on Friday.
That is unless there's a significant shift in the US interest rate outlook or a sudden de-escalation in geopolitical tensions, neither of which appears imminent in the near future.Following Friday’s reversal-looking price action, when the metal dropped sharply after hitting a new record high, traders will be wondering whether more short-term losses could be on the way this week before we see fresh dip-buying again.
Gold’s long-term charts certainly look bullish, but there is no doubt that prices also appear overbought on multiple time frames. Thus, a bit of further weakness in the short term should not come as a surprise. These conditions can normalize over time. It can do so by simply maintaining around its current levels for several days without significantly retracing.
The next level on the downside would be the December high at $2146 and finally that long-term pivotal zone of $2075-$2081, which is now the most important long-term technical area on gold. Historically, whenever gold has surpassed the overbought threshold, particularly on long-term charts, it has typically been followed by a sell-off. While past trends don't guarantee future outcomes, the possibility of gold declining somewhat from its current levels can't be disregarded, especially considering its rapid rally.
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