Gold extended the losses yesterday after breaking
below the 4,070 support as widespread risk aversion tightened financial
conditions. It looks like gold have been driven mainly by liquidations to cover
losses in the stock market, much like what we’ve seen in 2025.
To understand the mechanics, imagine that an
investment fund holds stocks, gold and government bonds. Some stocks suddenly
crash, and the fund suffers losses on leveraged positions. The fund may need to
raise cash to meet margin calls, reduce leverage or satisfy investor
redemptions. Rather than selling only the assets that caused the losses, it may
sell whatever it can liquidate quickly. Gold is particularly useful in this
situation because it is highly liquid and can be sold quickly.
The main drivers like real yields have been actually
pointing to higher gold prices. In fact, real yields fell significantly as
inflation expectations remain roughly unchanged given the increase in oil
prices, while nominal Treasury yields fell due to growth concerns. This might be
an opportunity for the buyers to fade the weakness and enter at better prices.
Today, the focus will be on the US Flash PMIs. If the
data surprises to the downside, growth concerns will likely intensify, and we should
get another dovish repricing. In this scenario, gold should be supported as
real yields would fall further. Stronger than expected data, on the other hand,
could quell growth fears in the near-term and put renewed pressure on gold.
GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that gold (CFD contract) extended the
losses yesterday after breaking below the 4,070 support. We are approaching a
key support zone around the 3,885 level where we have also a major upward
trendline for confluence. If the price gets there, we can expect the buyers to
step in, with a defined risk below the trendline, to position for a rally into
new record highs. The sellers, on the other hand, will look for a break lower
to increase the bearish bets into the 3,500 level next.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
On the 4 hour chart, we can
see more clearly the selloff after the price broke below the 4,070 support as
more sellers piled in to target the 3,885 level. If we get a pullback before
that, we can expect the sellers to step in again around the 4,070 resistance,
with a defined risk above it, to keep pushing into new lows. The buyers, on the
other hand, will look for a break higher to extend the pullback into the
downward trendline next.
GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME
On the 1 hour chart, we
have a minor downward trendline defining the bearish momentum. The sellers will
likely continue to lean on the trendline, with a defined risk above it, to keep
pushing into the 3,885 support. The buyers, on the other hand, will look for a
break higher to pile in for a pullback into the major downward trendline, with
the 4,070 resistance as the first target. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we
conclude the week with the US Flash PMIs.
This article was written by Giuseppe Dellamotta at investinglive.com.
