Gold prices have grown significantly since early March, with the cost of the yellow metal rising by another 5.3% over the past week. The price steadily surpassed the previous historical highs set in early December. However, the rally finally showed signs of slowing down on Friday, with the activity of the bulls beginning to fade as the price approached the level of $2,200 per ounce. Gold buyers have started to take profits, and they will now wait for more favorable prices to open new long positions.
The physical gold market participants are expressing more and more concerns about the fall in demand due to a steep rise in the metal's price. This information was provided to Reuters by gold traders from Dubai. Purchases of jewelry are still at the same levels, but the updated gold bullion prices have already scared away a significant portion of customers from local stores.
A similar situation is seen in the Indian gold market. At the end of February local dealers offered the yellow metal with a premium of $1 per ounce to global prices, while last week they had to make discounts up to $30. However, many consumers are still displeased with the current prices and tend to be cautious in their purchases. This is particularly evident at the height of the wedding season, which is traditionally a time of high demand for gold.
Physical gold traders in China also faced a drop in demand. As a result, they reduced the range of gold premiums from $36–48 to $20–36 per ounce. The population of Asian countries is traditionally highly sensitive to the price dynamics, refusing to buy gold when its price rises sharply. Demand is likely to stabilize over time, because a significant increase in consumption requires a serious correction in the yellow metal's cost.
In addition to the fundamentals, technical factors are also in favor of a pullback in gold prices. The RSI and Stochastic indicators are in a strong overbought zone, indicating a high probability of a decline in prices. The first correction target may be the Fibonacci level of 23.6% (2,145).
Consider the following trading strategy:
Sell gold at the current price. Take profit – 2,145. Stop loss – 2,200.
Traders may also use a Trailing stop instead of a fixed Stop loss at their discretion
This content is for informational purposes only and is not intended to be investing advice.
