(Kitco News) - After Friday’s breakdown, gold prices could have further to fall, but some analysts believe investors should ignore the noise and focus on the bigger picture.
In a note published Monday, Fawad Razaqzada, Market Analyst at FOREX.com, highlighted the significant chart damage inflicted on gold on Friday after prices dropped below their 200-day moving average.
He added that there is a risk gold prices could test major support at $4,000 an ounce this week if inflation pressures heat up more than expected. He noted that the last time gold prices dropped below their 200-day moving average, in September 2023, the breakdown led to a further 5% decline.
“The technical picture has deteriorated noticeably following last week’s sell-off. Gold’s inability to sustain gains above the $4,500 region ultimately left the market vulnerable to a deeper correction, with the break beneath the 200-day moving average accelerating downside momentum,” he said. “The next major area of support is a longer-term ascending trend line near $4,230. Below that, support levels become increasingly sparse until the March lows around $4,100, creating scope for a more pronounced decline if sellers maintain control. Given the current market structure, a move toward the psychologically important $4,000 level can no longer be ruled out.”
Fawad’s outlook comes as markets prepare for Wednesday’s Consumer Price Index report, with core inflation expected to rise 2.9% over the last 12 months.
“Another firm inflation reading would likely strengthen expectations that rates remain elevated for longer, potentially providing further support for the dollar while weighing on precious metals,” said Razaqzada.
Simon-Peter Massabni, Head of Business Development at XS.com, said he has a short-term negative outlook for gold, as the resilient labor market and rising inflation pressures support higher interest rates and a stronger U.S. dollar.
“Gold’s future direction will be determined primarily by the trajectory of U.S. monetary policy, unless exceptional geopolitical developments emerge that fundamentally alter the balance of power in global financial markets,” he said. “The most probable scenario is continued market volatility accompanied by a modest bearish bias for gold, as long as U.S. yields remain elevated and expectations for near-term rate cuts continue to fade.”
However, Massabni said that despite the near-term downside risks, his bullish medium-term outlook has not changed.
“Several supportive factors remain in place, most notably the continued diversification of reserves by central banks and their increasing gold purchases as part of broader efforts to reduce dependence on the U.S. dollar. Furthermore, elevated global debt levels, fiscal challenges facing major economies, and persistent political uncertainty across various regions continue to provide strategic long-term support for the precious metal,” he said.
In an exclusive comment to Kitco News, Jeff Sarti, CEO of Morton Wealth, said he is not paying much attention to the short-term trends in gold.
“More importantly, we question whether our long-term thesis has changed or should be re-evaluated. The answer to that is ‘no,’” he said. “Long-term trends of fiscal and monetary recklessness, coupled with continued inflationary pressures, remain in force as strongly as ever.”
Looking beyond current volatility, Sarti said that lower prices could be a buying opportunity for some investors.
“If you are underweight gold, then yes, nibbling a bit here makes sense, but more from a long-term perspective, we are sticking with our positioning,” he said.
