Increasing risk of gold's long squeeze could reinforce decline to $4,070

Several factors are contributing to gold's rise today.

The first is global instability, including geopolitical risks—trade tensions between the United States and China in particular—and a high degree of uncertainty. These drivers increase investor appeal of the most well-known safe-haven asset.

The second factor is a weaker US dollar. The greenback is losing its strength amid growing expectations of interest rate cuts by the Federal Reserve (Fed), which is drawing market attention toward gold.

The third driver contributing to the precious metal’s appreciation is inflation forecasts. These also support demand for gold as a means of preserving purchasing power.

Finally, another key factor is active buying from global central banks. According to the World Gold Council (WGC), regulators increased their reserves in the first half of 2025, pushing prices higher.

Despite these favorable factors, there are also opposing scenarios. The precious metal, which is technically extremely overbought, could enter a deeper decline toward a target of $4,070 per ounce if the next local support at $4,185 is broken. That's because just below last week's local low at $4,185, there is a large accumulation of stop orders for open long positions, as well as orders to open new short positions. If this level is reached, the closure of existing buying positions will begin, while new selling ones will reinforce this long squeeze.

The overall recommendation is to sell gold when the price consolidates below $4,185. Profits should be taken at $4,070. Stop Loss could be set at $4,300.

The volume of the open position should be calculated so that the potential loss (protected by a Stop Loss order) does not exceed 1% of your deposit. If your account balance does not allow opening a position of this size, it is better to avoid entering the market on this signal and wait for other trade options that meet low-risk criteria.