As the XAU/USD chart shows:
- Yesterday, the spot gold price stopped just a few cents short of the key psychological level of $3,500 (and even exceeded it on the futures market);
- But this morning, an ounce is trading around $3,300, having dropped aggressively by more than 5%.
Why Did Gold Suddenly Drop?
The sharp decline followed a shift in rhetoric from President Trump. According to Reuters:
- The US President backed away from threats to dismiss Federal Reserve Chair Jerome Powell;
- He also signalled a more moderate stance on tariffs against China.
Market participants interpreted this as a reason to take profits on long positions, as the softened tone from the White House reduced demand for safe-haven assets. As a result, gold collapsed from its historic high, while the US dollar index rebounded from multi-month lows.
Technical Analysis of the XAU/USD Chart
Gold price fluctuations have formed an upward channel (highlighted in blue), with key reversal points marked for constructing the channel. From this perspective, one interpretation is that the upper boundary marked a price area where gold was extremely overbought. Now, the imbalance in market sentiment may be driving the price back towards the median, where supply and demand tend to stabilise.
And although the $3,300 level is currently acting as support, the XAU/USD chart reveals several signs suggesting that bears are taking control:
- The price has dropped by approximately $200 in less than two days;
- A bearish Fair Value Gap has formed during the decline (highlighted by a rectangle) – a pattern typically interpreted as sellers outweighing buyers;
- The steep purple ascending channel has been broken.
It can be assumed that even if the fundamental backdrop offers reasons for a short-term price recovery, this may prove to be only a temporary bounce following a sharp shift in sentiment towards bearishness at the start of the current week.
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