The gold price continues to see selling pressure. But this is where investors will see the real courage in the market, according to one market analyst. In addition, the analyst states that he is closely monitoring some critical levels.
Gold’s recent price action is a healthy and overdue correction!
cryptokoin.comAs you follow from , gold rose above $2,448 in April. Thus, the shiny metal hit an all-time high. The gold market has risen approximately $450 this year. Market analyst Ole Hansen says gold looks sluggish after failing to gain above $2,400 twice in the last two weeks. “From a trading psychology perspective, it makes sense that some of the long positions that have been on the lookout are starting to take chips off the table,” Hansen says.
Gold prices dropped to $2,304.60 overnight as low liquidity increased volatility in the market. However, prices recovered in the North American session. In his latest research note on gold, Hansen evaluates the recent price movement as healthy. He also calls it an overdue fix. Hansen adds that this selling pressure “will help determine the true level of momentum and underlying demand in managed money accounts, which normally trade with a short-term focus and will reduce long positions if the technical and/or fundamental picture changes.”
Critical levels for gold
The analyst also looks at the technical outlook for gold. Hansen notes that the first resistance is $2,322. But he says he is watching the key Fibonacci retracement level between $2,255 and $2,260. “Holding above this level will send a signal to the market that the pullback is nothing more than a weak correction within a strong uptrend,” says the analyst.
A critical factor that continues to support gold is the breath of the rally. Hansen points out that even within this correction, investors are still holding on to solid gains. In this context, the analyst makes the following assessment:
The depth of the correction now emerging will depend on whether the levels are broken, which would force hedge funds to reduce some of the 17.9 million ounces (557 tons) of net long positions they accumulated below $2,200 in the four weeks to March 12. The current price is well above these entry levels. However, it is safer to assume that these positions will be defended at significantly higher levels. So that’s why we’re seeing the largest single-day decline in almost two years.
The analyst remains bullish on gold in the long term because…
Ole Hansen also looks beyond short-term volatility. The analyst says that he continues to rise on gold in the long term. Hansen adds that the factors behind the breakout rally remain in place. Geopolitical tensions have stabilized in recent days. However, it has not subsided yet. At the same time, central banks continue to buy gold and move away from the US dollar.
Meanwhile, the Federal Reserve has pushed back on rate cut expectations. Market expectations therefore favor higher bond yields and a stronger US dollar. However, Hansen notes that this has become a secondary factor in the market. Rising government debt in major economies will support gold even as bond yields rise, Hansen says. In this context, the analyst makes the following comment.
Treasury yields are not necessarily negative for gold as they increase focus on overall debt levels and their sustainability.
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