Gold’s recent rally is showing signs of exhaustion, raising the key question: Will prices keep pulling back from recent highs, or will gold make another run at the psychological $3,000 level? A sustained drop would reinforce a short-term bearish outlook, but buyers are still holding strong at key support zones.
Recent Price Movement
After a sharp drop on Friday, gold made a mild recovery in early Monday trading. However, with U.S. markets closed for a holiday and no major economic events driving price action, technical factors played a bigger role. Gold is hovering near the $2,900 level, making its next move crucial. Friday’s sudden reversal suggests caution, yet the absence of strong selling pressure signals that buyers are still active.
Trend Reversal or Temporary Dip?
Gold’s sharp drop on Friday followed a failed attempt to break past $2,942, sending prices down to $2,877. This decline pushed gold below its short-term support range of $2,900–$2,905, which may now act as resistance. If gold struggles to reclaim this level, short-term sentiment could shift bearish, especially with the formation of a bearish engulfing candle on the daily chart.
Despite this pullback, gold remains in a broader uptrend, regularly setting new highs. However, signs of fatigue are emerging, raising questions about how much longer the rally can last.
Overbought Signals Raise Concerns
Gold’s strong run pushed momentum indicators into overbought territory. The Relative Strength Index (RSI) hit 78 before Friday’s decline and has now dropped just below 70. The weekly RSI remains elevated at 75, showing negative divergence with price action—a warning sign that momentum may be fading. The monthly RSI sits at an extended 80, increasing the risk of a correction.
Technical indicators suggest gold could be due for a pullback or at least a consolidation period. However, Friday’s decline didn’t see aggressive follow-through selling, meaning the bears haven’t fully taken control yet. Traders should stay cautious, as the recent reversal signals that gold’s rally may be running out of steam.
What’s Driving Gold’s Volatility?
The U.S. dollar remains a key driver of gold price swings. Last week’s stronger-than-expected inflation report initially boosted the dollar, but it later softened after Trump’s tempered stance on tariffs and weaker retail sales data. The euro briefly gained on hopes of diplomatic progress in Ukraine but has since slipped back below $1.05.
Gold had been moving higher even as the dollar strengthened, breaking its usual inverse correlation. That unusual behavior may have contributed to Friday’s sharp drop.
Outlook: Is a Deeper Correction Coming?
With speculation running high, gold may need to cool off after its recent surge, especially if geopolitical tensions start to ease. If Trump makes progress in resolving conflicts in Ukraine and Gaza, safe-haven demand could decline. On the other hand, his economic policies and high spending plans could stoke inflation concerns, delaying rate cuts and keeping bond yields elevated.
For now, gold bulls should tread carefully. The long-term trend remains positive, but the risk of a deeper correction is growing.
