Gold prices have reversed dramatically following an incredible nine-week run up. Beyond the historical perspective, this impressive run is already one of the strongest streaks we’ve seen in at least four decades. Speculation in the gold trading market is beginning to wane. This leads to the questions of if we’re seeing the end of the bull market or just a pull back. The long-term mean of gold is around $3,600. Prices have only ever blasted like this more than 20% above the 20-week exponential moving average (EMA).
Those are the factors—now here’s how gold prices went through the roof. Central banks in emerging markets are the drivers of this spike. They’re aggressively building up their gold reserves at the fastest clip seen in decades. That’s when gold convincingly broke above $2,100, confirming the start of a new bull market. As you can see from the current price action, we have gold once again testing some very key support levels. In particular, it’s testing the 0.236 retracement and the 20-day EMA.
As gold’s recent price action illustrates, this serves as a textbook case of break in structure. You can best visualize this on the 4-hour chart. In the middle of its massive rally, gold put in a double top / M-structure and then broke below it with conviction. With prices finally beginning to drop, analysts are offering their advice. They consider a 12% correction from the recent peaks would be perfectly okay—and actually a good thing within the context of a longer-term, upward trend.
That’s because gold has been on such a long winning streak, the likes of which haven’t been seen since the 1970s. At the time, economic uncertainty pushed investors to search for safe-haven assets. While current market dynamics differ significantly from that era, the underlying demand for gold remains strong as central banks continue to bolster their reserves.
With ash still settling from this week’s speculative pop, wary traders are watching the fireworks. They’re understandably keeping an eye on how gold will respond at crucial technical levels. The 200 simple moving average on the 4-hour chart hovers near this level, around $3,875. This level now has the potential to play as a resistance barrier in the upcoming weeks. This new level will be significant in determining where gold heads from here. It will determine if gold can continue to rally or if it will face further losses.