Gold: Momentum Stays Strong Despite Signs of Near-Term Exhaustion

• Gold’s rally paused at $4,380 after a $195 intraday drop sparked profit-taking.
• A Fed rate cut next week could reignite momentum — but $4K remains in view first.
• Unless bulls lose control of the trendline, the path toward $5,000 stays intact.
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The price of gold hit repeated all-time highs last week, before peaking, for the time being, at $4380 on Friday. From there, the metal took a $195 intraday drop to momentarily move back below $4200, before bouncing back slightly, leading to a more cautious start to this week’s trading. With the metal hitting new record highs almost on a daily basis, it felt like there was no real selling pressure last week until it finally succumbed to profit-taking pressure on Friday. Hardly a surprise to be fair, with the market being so severely overbought. But was that the end of the bull trend? It is far too early to say, although a large bearish looking candle at the peak does point to at least a temporary top, which wouldn’t be a bad thing. So, I certainly wouldn’t be surprised if gold were to ease back a little more from here, and potentially even head back down to $4K, before bouncing back or consolidating. That said, it is worth pointing out that gold has formed lots of false top signals during this bull run, and Friday’s price action could be yet another example of that. This calls for caution if you are trading it on the short side.

What to Watch for This Week?

The week ahead is set to be a busy one for the earnings calendar, while the macro calendar is again set to be quieter with the ongoing US government shutdown delaying the release of data there. That being said, the BLS is expected to release the delayed CPI on Friday, October 24. Expectations point to a month-over-month reading of 0.4% for the headline and 0.3% for the core CPI. If this is the case, a rate cut at next week’s FOMC meeting would be further cemented, potentially keeping gold prices supported. All told however, inflation is unlikely to have major implications for the FX markets, and by extension gold, given that the Fed’s focus is now on employment. That said, a massive beat or miss should still cause significant volatility. Elsewhere, UK CPI on Wednesday and Global PMIs on Friday should bring about a bit of volatility for the dollar which could impact gold prices.

What’s Driving Gold Prices?

The metal has been on a tear this year, and until Friday, it didn’t look like it wanted to stop. Supporting the rally has been expectations of continued central bank buying, which means traders have been trying to front-run them by bidding up prices. Expectations that the Fed will cut rates two more times this year and possibly by an additional 75 basis points in 2026, means investors are expecting bond yields to fall and the dollar to remain weak. Then there is haven demand, which seems to be only benefitting gold right now. With US–China trade tensions being reignited in the last couple of weeks, investors have had even more reasons to hedge their long equity bets by diversifying into gold.

Can Gold Head to $5K?

While the correction risks are there, the fact that the momentum has been so strong and pullbacks shallow, it appears like market participants don’t expect a sudden plunge in gold prices when it eventually does top out. The trend has to weaken first before it can reverse. That is also encouraging the bulls to keep hold of their positions for as long as possible. With the $5K handle now just $700 or so away, I wouldn’t bet against gold getting there eventually. But I feel a long-overdue correction is first needed to shake out the weaker hands and encourage fresh dip buyers to jump on the bandwagon. Was Friday the turning point? Only time will tell. But we have to get more downside follow though if Friday did mark the top. So far in today’s session, we haven seen any downside follow through yet.

Technical Analysis and Key Levels

From a technical standpoint, there is no question about gold’s trend, which remains unambiguously bullish. The consistent breakouts to new all-time highs, minimal pullbacks and rising moving averages all suggest the trend is very strong. Yet prices are at historic overbought levels when you look at any momentum indicators like the Relative Strength Index (RSI). Such overbought conditions typically precede periods of consolidation or mini corrections. Let’s see if we will now get a bit of a dip in light of Friday’s bearish price action. Some would argue that the dip already took place on Friday when the metal plunged a huge $195 from the high. Such a fast drop in a strong bull market typically gets bought, and judging by price action since Friday afternoon, it looks that way. So, the onus is once again on the bears to show up if they want to push gold prices down.All told, unless we see the end of the series of higher highs and higher lows, the path of least resistance will remain to the upside. Only when that changes will the technical outlook on gold turn bearish from a technical point of view.

In terms of short-term supports to watch now, well they include $4200 and $4180. Below these levels, there are no further obvious immediate support levels until $4059, $4023 and $4,000.

On the upside, targets include round handles like $4300 (already reached and breached last week), $4400 and $4500 etc. One additional level to watch is Friday’s high of $4380.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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