- Gold remains at technically overbought levels across multiple time frames, with RSI showing negative divergence, signaling potential weakness.
- Gold’s strong correlation with the S&P 500 suggests that a deeper correction in equities could drag gold prices lower.
- A break below key support at $2877 could trigger a larger sell-off, while resistance at $2940–$2950 has already led to profit-taking.
- Looking for more actionable trade ideas? Subscribe here to unlock access to ProPicks AI winners.
Gold edged higher at the start of this week’s trading after finishing lower on Friday, likely due to some profit-taking. Despite Friday’s weaker close, it still managed to notch an eighth consecutive weekly gain. However, as seen with US equity markets on Friday, markets don’t always go up.
A shift in sentiment can trigger a sharp sell-off, and even gold is not immune. Given gold’s positive correlation with the S&P 500 in recent years, a deeper correction in equities could well drag the metal lower in the coming days, especially as the metal remains at a technically overbought level across multiple time frames.
Gold Holds Ground for Now Despite Worst Session of 2025 for US Stocks
Friday’s stock market rout—the worst session of 2025 for US equities—came in response to weaker-than-expected economic data and a surge in long-term inflation expectations among consumers. Bond markets rallied, sending yields lower. Gold, despite some intraday weakness, held on to a weekly gain, although Silver and crude oil fared less well, with the latter suffering significant declines.
So why has gold remained resilient while other risk assets stumbled? Safe-haven flows appear to be the answer, driven by ongoing geopolitical and trade tensions. These concerns have deterred any meaningful wave of profit-taking or speculative short-selling. Traders continue to buy on dips, sustaining the bullish momentum that has characterized recent price action.
Uncertainty surrounding Trump’s ability to broker a swift resolution in Ukraine—despite his assertive rhetoric—has further bolstered gold’s appeal. Kyiv and the EU seem increasingly side-lined in US-Russia peace talks, reinforcing investor demand for gold as a hedge against uncertainty.
That said, risks of a correction are growing, particularly given gold’s overbought technical conditions and its strong correlation with the S&P 500 in recent years.
What Factors Could Send Gold Prices Lower?
For all its recent strength, gold remains vulnerable to a corrective move lower. A pullback would not be entirely unwelcome, particularly among traders wary of an overheated market. Should geopolitical tensions ease, gold’s safe-haven appeal may diminish. If Trump succeeds in advancing negotiations in Ukraine and Gaza, demand for defensive assets could wane, though such an outcome is far from guaranteed.
Moreover, Trump’s aggressive fiscal policies and protectionist stance may stoke inflationary pressures, potentially leading to further delays in Federal Reserve rate cuts. Any postponement of monetary easing would support bond yields, potentially creating a headwind for gold (though this hasn’t been the case in the last couple of years).
From a trading point of view, for now, there are no definitive technical signals of an imminent reversal. However, a break below $2900 could serve as an early warning that bullish momentum is fading. A more concerning shift would be a decisive drop below $2877, which would mark a lower low and possibly trigger a more extended correction.
Key Levels and Trading Scenarios for Gold
Gold has been struggling to break through resistance around $2940–$2950, an area aligning with the 161.8% Fibonacci extension from October’s downswing. This zone has already prompted some profit-taking.
Meanwhile, the Relative Strength Index (RSI) remains at overbought levels across the daily, weekly, and monthly time frames. Not only that, but the RSI is also in a state of negative divergence on these time frames, making a lower high compared to the underlying gold price which has been making higher highs. This divergence suggests that the rally may be running out of steam. That said, there are no clear bearish signals on the underlying gold price for traders to work with just yet. Thus, the RSI overbought conditions only serve as a warning for gold bulls, for now.
On the downside, $2877 remains a key technical support. A breach of this level could signal a shift in sentiment, paving the way for a deeper correction towards the $2790-$2800 region.
Until that $2877 level breaks, the broader bullish trend remains intact, with buyers keen to step in at the first sign of weakness.
Indeed, the alternative scenario for gold is that if it now manages to clear above that $2940-$2950 range, then that could open the door for further upside, with the psychologically significant $3000 level coming into focus next.
***
Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.