Gold prices are down over 1% on Friday as investors continued to book profits after a recent run-up in prices. The market has now give back more than half of its gains from the rally that began on February 5. Nonetheless, the precious metal is set to finish with a third consecutive monthly gain although it is likely to end the week with a loss.
At 13:25 GMT, April Comex gold is trading $1623.80, down $18.70 or -1.14%.
The weakness in gold this week has come as a surprise to some. One would think that with the global equity markets plunging over 10% in just a matter of days, gold prices would’ve soared. But that hasn’t been the case.
Gold is probably under pressure this week for a number of reasons. Firstly, it may be too costly or overpriced. Secondly, traders may have fully priced in the sooner-than-expected rate cuts from the Fed. Thirdly, some of the bigger hedge funds may be booking profits to offset some of their losses or to meet margin calls in other markets. Finally, investors may have determined that buying U.S. Treasurys for safe-haven protection is a better play due to liquidity issues in gold.
We said earlier in the week that the longer-term fundamentals for gold are bullish and that investors may not buying again when the market hits a value zone. Not everyone has the money to chase a market higher.
Gold is currently trading inside a value zone defined as $1628.10 to $1604.80. Watch the price action and read the order flow on a test of this zone to determine if buying is taking place. Ideally, we’d like to see a closing price reversal bottom, but that moves seems unlikely today unless there is a dramatic turnaround.
Gold may have to spend a few days inside the value zone, building a support base, before prices move higher.