Gold took another tumble overnight, giving back all yesterday’s gains and a bit more. Midway through Friday’s European session, gold had tipped below $3,300 per ounce.
While this is still above Wednesday’s low of $3,260, it does feel as if the sellers now have the upper hand, at least over the medium term. In the short term, it seems possible that gold will experience sharp moves in both directions.
This stands in sharp contrast to the steady, plodding gains made over the past thirty months, which culminated in a blow-off rally in April. Could this mark the top for gold?
The rally is certainly long in the tooth, as it can trace its origins back to December 2015 when gold traded below $1,050. And $3,500 is a relatively pleasing, roundish number at which to end a near-ten year rally. But it’s far too early to tell.
The sell-off since Tuesday has certainly blown some froth off a very overbought market. According to the daily MACD, gold was more overbought than it was when it peaked back in April 2011. This suggests that the market may need to take some time to reset.
Source: TN Trader
This could mean that a bigger pullback is coming. Or it could mean a long period of effectively sideways trading, albeit with some big intra-day swings. Most likely, it will be a combination of the two.
There’s also a smaller probability that gold does rally further from current levels, and goes on to hit fresh records. If so, and considering past history, this would proceed a much larger, and more protracted decline, possibly lasting many years.
