Investor attention in the commodity markets remains firmly fixed on gold, which surged to a new record high of $3,500 earlier this week before undergoing a sharp 5% correction. Unfortunately, this latest wave of volatility coincided with the Easter holiday period, during which several global exchanges were closed, resulting in reduced liquidity.
From a technical perspective, the breakout near $3,500 followed by a swift pullback suggests an increased likelihood of entering a short-term consolidation phase. The first key support level is currently around $3,292.
In addition, there is an anecdotal observation about gold worth noting: it emphasizes the importance of monitoring Asian market activity, which has recently become the most significant driver of demand.
According to Ole Hansen, Head of Commodity Strategy at Saxo Bank, investor focus remains on gold, which has surged to $3,500—an impressive 33% increase since the start of the year—only to face a sharp 5% drop. This rally pushed the price of gold to Saxo’s upwardly revised forecast much sooner than expected. Hansen notes that questions are now emerging about the market’s ability to sustain this bullish trend without a prior period of consolidation.
Geopolitical and Macroeconomic Drivers Behind Gold’s Rise
The recent rally illustrates a broader trend in commodities, still heavily influenced by macroeconomic and geopolitical factors, particularly the intensifying trade war between the U.S. and China. As tensions between the two largest global economies escalate, so do fears about the conflict’s potential impact on global economic growth and inflation.
Several factors have contributed to the ongoing gold bull market since last year:
- A weakening U.S. dollar
- De-dollarization efforts by some central banks
- Concerns about U.S. fiscal policy and public debt
The timing of the volatility—during Easter when many markets were shut—amplified reactions to political pressure on the U.S. Federal Reserve. President Trump once again challenged the Fed’s independence by publicly calling for rate cuts, unsettling financial markets. Stocks declined, and the dollar hit a three-year low. The backlash to his criticism of Fed Chair Jerome Powell, which in extreme cases could have triggered a financial crisis, forced Trump to walk back his stance, stating he would not fire Powell, while simultaneously framing him as a scapegoat for any upcoming U.S. economic slowdown.
Short-Term Reversal and Long-Term Outlook
With Trump softening his rhetoric on China tariffs and hopes for peace in the Russia-Ukraine war rekindled, markets got a boost of optimism, leading to a rebound in equities and a partial recovery in the U.S. dollar. Meanwhile, gold, which had previously benefited from heightened risk aversion, fell 5% as profit-taking set in and momentum and FOMO-driven traders exited their positions.
Technically, the sharp spike near $3,500 followed by a rapid reversal increases the short-term risk of a deeper correction. However, Fibonacci retracement analysis shows that gold has held above the $3,292 support, which corresponds to the 0.382 retracement level—suggesting a shallow correction within a strong uptrend. Should the correction deepen, investors will watch levels at $3,228 and then $3,164—a break below which could signal a return to the $3,000 area.
Spot Price and Technical Patterns
Historically, when gold’s price diverges more than 20% above its 200-day moving average, a correction has typically followed. Yesterday’s surge pushed gold over that threshold, hinting at a potential extended consolidation to allow the average to “catch up.” However, central bank demand—a major driver of gold since 2022—is less reactive to technical signals, possibly limiting the chance of a typical correction scenario repeating.
Asian Demand Under the Spotlight
In the coming days, investor reaction from Asia—a consistent and significant source of gold demand—will be critical. Data from Morgan Stanley analyzing COMEX trading sessions reveals a stark contrast: gold fell 5.9% during the U.S. “pit” session (8:20–13:30 EST) over the last month, while gaining 14.7% during the Asian/European “non-pit” hours.
Long-Term Gold Outlook Remains Positive
While short-term prospects may be challenged—especially if the U.S. President maintains a dovish tone—market jitters remain as investors await data on the economic impact of tariffs and inflation. Saxo maintains its positive long-term view on gold, although reaching the $3,500 target earlier than expected means further gains may depend on deteriorating economic or political conditions.
Key Factors Supporting Gold Prices:
- Federal Reserve rate expectations: Markets currently price in a 75–100 basis point rate cut by year-end, suggesting a looser monetary policy. Lower rates reduce the opportunity cost of holding non-yielding gold.
- Investment demand for paper gold: Futures and ETFs are heavily influenced by momentum and macro data. ETF holdings currently stand at 2,773 tons, up 269 tons from May last year, but still below the 2020 record of 3,453 tons.
- Rising U.S. inflation expectations: Falling real yields (nominal yields minus expected inflation) increase gold’s attractiveness as a hedge against inflation.
- Geopolitical risks: Global instability, particularly trade wars and conflicts, drives safe-haven demand for gold.
- Central bank gold purchases: De-dollarization is prompting central banks—especially in China, India, Turkey, and Russia—to accumulate gold. Central banks have been purchasing over 1,000 tons annually since 2021 and are expected to continue this trend.
- Strong demand in Asia: Particularly from Chinese investors concerned about domestic instability, real estate woes, and potential yuan devaluation amid rising export tariffs.
Source: CEO.com.pl – Gold Hits New Record, Then Drops 5% in Profit-Taking Wave
