(Kitco News) - Volatility in the precious metals remains elevated as the market trades around key psychological levels and tries to find some stability after two days of sharp selling pressure.
Tuesday, gold and silver saw their biggest one-day gains in recent history, and even with some follow-through buying early Wednesday, the yellow metal doesn’t appear to have enough momentum to hold gains above $5,000 an ounce.
Spot gold last traded at $4,921.80 an ounce, down 0.5% on the day. Despite some renewed selling pressure proces up 20% from Monday’s lows; meanwhile, prices are down 12% from last week’s highs.
Silver is seeing a similar move as it has been unable to hold gains above $90 an ounce. Spot silver last traded at $85.44 an ounce, up relatively flat on the day. Silver is also up 20% from its lows, but down 29% from last week’s highs.
Despite the recovery, one analyst is warning investors that gold and silver could see more selling pressure in the near-term. “For me, the near term, gold forecast is far from bullish,” said Fawad Razaqzada, Market Analyst at FOREX.com.
Razaqzada said that with all the volatility in the market, it is far too early for investors to be looking for a bottom. He added that he sees the buying momentum in the last two days as a counter-trend rally.
“Gold had effectively been a one-way trade for months, before falling close to 20% peak to trough. Positioning was crowded, momentum was stretched, and eventually something had to give. What we’ve just seen feels like the first proper trend reversal in precious metals,” he said in a note. “Moves of that magnitude don’t get repaired overnight, and are therefore far too early to declare an end to the near-term bearish gold forecast.”
Along with gold facing some technical headwinds, Razaqzada said that there are also some fundamental shifts in the marketplace that investors need to pay attention to. He explained that weakness in the U.S. dollar looks a little overdone and there are risks that the greenback rises in the near-term.
“A stronger dollar tends to act as a headwind for precious metals, and if this move turns out to be more than a short-lived bounce, it could continue to weigh on gold prices,” he said. “More broadly, the US economy simply doesn’t appear to be slowing as quickly as markets had anticipated. As a result, expectations for aggressive rate cuts have been pared back. Without a clear negative shock in the data, it’s still difficult to build a convincing bearish case for the dollar.”
Looking at gold’s technical picture, Razaqzada said that $5,000 an ounce will be the key level to watch.
“Not just because it’s a round number, but because of how fast and forceful the move was. At the moment, gold appears to be climbing within a short-term rising wedge formation – a pattern that often acts as a bearish continuation rather than a bullish signal,” he said. “On the upside, resistance sits around $5,000, with further supply likely near $5,100. These levels now look like areas where sellers may be keen to fade strength.”
On the downside, Razaqzada said he is watching initial support around $4,900, then $4,800; however, he added that prices could fall as low as $4,500 an ounce.
Rania Gule, Senior Market Analyst at XS.com said in a note on Tuesday that she is also expecting gold prices to face some headwinds in the near-term even as long-term fundamentals remain firmly in place.
“In my view, the market remains in a ‘bottom-testing’ phase, with investors seeking confirmation that the corrective decline has truly ended,” she said. “My outlook for gold leans toward a neutral-to-slightly-bearish corrective range rather than a new impulsive rally. I believe the $4,800 level will remain a pivotal zone, with buyers defending it as long as the dollar lacks strong momentum, but any clear break below this level could open the door to retesting lower levels. Conversely, a sustainable return to record highs requires one of two conditions: either a sharp and unexpected escalation in geopolitical risks or a clear shift in the Fed’s stance toward easing—neither of which is currently present.”
Gule said that instead of looking for more capital gains, gold investors should be more cautious and focus on risk management.
“Gold has not lost its shine as a safe haven, but it also lacks the justification to launch a new historic rally,” she said.
