Gold Prices Drop Sharply from Record High
The XAU/USD chart shows that yesterday gold reached a fresh all-time peak, breaking above $3,870 for the first time. This surge was fuelled by heightened concerns over the growing likelihood of a US government shutdown.
According to reports in the media:
→ Vice President J.D. Vance stated that the United States is moving towards a government shutdown, placing the blame on the Democrats.
→ Senate Minority Leader Chuck Schumer added, “We have very large disagreements.”
Such concerns over the potential consequences of a shutdown increased demand for secure-haven assets, gold in particular. Yet despite this initial surge, XAU/USD has fallen sharply today. The question is: what does this shift suggest?
Technical Analysis of XAU/USD
In our previous review of gold prices, we identified an ascending channel, which continues to remain relevant.
Within this channel, it is significant to note that whenever the price has moved beyond its upper boundary, a correction has tended to follow. This behaviour typically reflects an overbought market condition, which is in most cases confirmed by the RSI indicator.
Yesterday, during the US trading session, gold pushed well beyond the channel’s upper boundary. This move left the market particularly vulnerable to a corrective pullback. As a result, today’s decline during the European session can largely be explained by traders reassessing risk exposure, while at the identical time locking in profits later than an impressive 11% gain since the begin of the month.
The pace of today’s decline is especially notable, as it underscores the strength and confidence of the bears. Taken together, yesterday’s sharp rally and today’s rapid trade-off can reasonably be interpreted as forming a bearish engulfing pattern. This provides stronger grounds for expecting a deeper correction towards the psychological level of $3,800, which also coincides with the channel’s median line (possible support areas are highlighted in purple).
It is therefore quite possible that the bulls expended most of their strength on yesterday’s surge. For the upward trend to regain momentum, a further period of consolidation may be necessary, likely accompanied by the formation of a “bull flag” continuation pattern.
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