Gold prices continue to update historical highs on a daily basis. At the beginning of the trading session on Monday, the price of the yellow metal for the first time rose above $2350 per ounce, but it failed to hold here. In 2 weeks, gold prices have risen by almost 9% due to lack of significant pullbacks, which led technical indicators to a state of strong overbought. If there is a news trigger, quotes could correct sharply to the range of 2275–2310.
Gold market participants unjustifiably ignored the strong U.S. labor market report for March, released on Friday. The number of jobs created and the unemployment rate were better than expected, which has changed traders' forecasts. Now the probability of the Fed's key rate cut in June fluctuates around 50%, and as early as Wednesday the U.S. inflation data is going to be released. If the rate of price growth also exceeds forecasts, the pressure on the gold price will increase significantly.
Central banks' interest in gold is waning amid excessive price increases. For example, the People's Bank of China increased its reserve by 0.2% to 72.74 million troy ounces last month. This is the smallest gold purchase since November 2022. Other regulators’ demand for gold could also reduce. They could even start selling it, locking in good profits.
Official data from the World Gold Council (WGC) for March is not yet available, but February statistics clearly shows a decline in the volume of metal purchases by central banks. During the last month of winter regulators replenished reserves by 19 tons of gold. Compared to January the figure fell by 58%. In total for 2 months, purchases of yellow metal amounted to 64 tons — 43% less than in 2023. Reduced demand will limit the growth of gold prices.
The Stochastic indicator is signaling to sell gold, RSI could follow it in the near future. It’s reasonable to consider the Fibonacci levels of 23.6% (mark 2310) and 38.2% (mark 2275) as correction targets.
The following trading strategy can be suggested:
Sell gold at the current price. Take profit 1 — 2310. Take profit 2 — 2275. Stop loss — 2355.
This content is for informational purposes only and is not intended to be investing advice.
