Gold is poised to correct following its two-week rally

On Monday morning, gold reached a two-week high at $4,244 per ounce, extending its recent advance. Such a surge was primarily driven by growing expectations of a December rate cut by the US Federal Reserve (Fed). According to the CME FedWatch Tool, the likelihood of monetary easing jumped to 87%, up from just 50% last week.

Sluggish US macroeconomic data and a weaker greenback provide fundamental backup for gold. The Dollar Index fell to 99.44, marking its worst weekly performance since July. Another key pillar of support is the record volume of precious metal purchases by central banks of developing countries, which aim to diversify their reserves amid escalating geopolitical tensions. This monetary shift has created perfect conditions for gold as a non-yielding asset. However, the current momentum fueled by speculative sentiment appears excessive.

The overall fundamental picture has some flaws, but investors turn a blind eye to them. Physical demand in key Asian markets—India and China in particular—remains subdued due to high prices. The removal of tax breaks on gold purchases in China further discourages consumers. Ongoing geopolitical tensions in Eastern Europe, once a major driver for the safe-haven asset, have already become a routine factor and are unable to generate new, sustainable, near-term price momentum.

Market optimism seems to be over the top, and a reversal could be sharp. Demand frenzy has already been factored in, creating overheated conditions. Technical indicators unanimously signal that gold is deeply overbought, and a correction is imminent. The price is now sitting near the upper Bollinger Band. Meanwhile, the Stochastic Oscillator is above 80—a classic sign that bullish momentum is fading.

Consider the following trading plan:

Sell gold at the current price. Place Take profit at $4,080 and Stop loss at $4,300.

This forecast is valid from December 1 to December 7, 2025.