Gold fell below $4,400, reaching levels last seen during the prolonged March decline. At its intraday low, the price dipped below the 200-day moving average. Buyers have repeatedly stepped in around this level over the past three years. The last week of May was no exception. Beyond purely technical factors, the precious metal was supported by positive signals from the US-Iran front and an encouraging equity market rally, which boosted risk appetite.
The key difference between the current rally from $4,400 to levels above $4,500 and the one in March is that gold no longer appears heavily oversold, and market conditions appear much more balanced. A break below this level could open the way to the $4,000–$4,100 range. However, if selling pressure intensifies, the decline could prove much deeper, down to $3,400.
Although we find it hard to believe in the sustainability of the current rebound, it is still worth acknowledging that the market may get stuck near current levels, gathering strength after the downward momentum, which could take anywhere from a couple of days to a week. An even more optimistic – and even less likely – scenario involves a bullish breakout above the 50-day moving average at $4,630, which would put an end to the recent months’ downtrend and restore a long-term bullish bias.
The FxPro Analyst Team