Gold primed for another $4,400–$4,550 rebound following its recent collapse

Gold endured a historic rout on Friday, plunging 9% during its worst trading session in over 40 years. Intraday losses were even steeper, suggesting that the corrective purge may still have room to run. On Monday, prices started testing $4,500, wiping out almost all of this year's gains. Yet, beneath the panic, strategic buyers are circling, waiting for the storm to pass out and for a counter-rally to gain a foothold.

The most plausible arena for a bullish stand now is the $4,400–$4,550 band—a dense cluster of major technical support levels for the precious metal. Here, the 50-day moving average converges with the medium-term trendline, as well as the October and December highs. Mathematically speaking, the $4,450 threshold in there marks the 50% Fibonacci retracement of gold's five-month rally. For traders, the most reliable entry would be to look for a confirmed bullish reversal in key oscillators, though this approach risks missing part of the initial profit.

All in all, the market had become dangerously overheated, making a sharp correction almost inevitable. However, the trigger came with the selection of Kevin Warsh as the next Federal Reserve (Fed) Chairman. His appointment is scheduled to begin in May. Among Donald Trump's prospective nominees, this candidate is seen as the least dovish, thus prompting a robust greenback recovery and sending commodities like gold into a tailspin. Bullion prices were primed for a pullback, so this news simply lit the fuse.

Of course, the timing has a silver lining. According to Bloomberg analysts, the crash occurred just ahead of the Lunar New Year celebrations, which could potentially fuel bargain-hunting demand from Chinese consumers. Furthermore, Asian exchanges will be closed for a week starting February 16, therefore draining volatility from the global market and building a firmer base for a gradual gold recovery. 

Try out the strategy for your trading outlined below:

Buy gold in the $4,400–$4,550 range. Place Take profit at $5,050. Set Stop loss at $4,200.