Gold is overbought, and bears are starting to appear

Updated on

Gold prices have been rocketing higher and higher this week and are now approaching $1,650 an ounce. However, the rapid rise has resulted in the yellow metal entering overbought territory, and now a few bearish signals have appeared. Most remain bulls on gold, but bears are starting to talk too.

Bear signals for gold

According to FXStreet, the moving average convergence divergence and the relative strength index both suggest the bears could take over control of gold, sending prices lower. The moving average convergence divergence looks to be turning negative, and relative strength index conditions could suggest an end to the climb.

The site suggests gold bullion could fall to Wednesday’s high at $1,613, although support remains at $1,611. If the price falls under $1,611, then further levels for gold bears are at $1,605 and $1,600.

Gold bears take the contrarian view of the yellow metal, saying that when expectations are as one-sided as they have been, it’s possible that all the potential buying may have already occurred, suggests Kitco. That could mean the market might reverse.

Kitco surveyed Wall Street and Main Street professionals and found that 93% of Wall Street professionals and 73% of Main Street voters expect the gold price to increase in the coming week. On the other hand, 7% of Wall Street professionals and 17% of Main Street voters were gold bears and said they expect the metal to decline next week.

Economic recovery will weigh on the gold price

Capital Economics economist Alexander Kozul-Wright said in a note this week that he expects the global economy to recover this year, which will ultimately weigh on the gold price by the end of the year. He expects the gold price to fall to $1,400 an ounce by year-end.

He does expect the gold price to keep climbing in the near term as concerns about the coronavirus continue to dominate global commentary. However, if the outbreak can be contained, he predicts demand for both gold and silver will fall.

He also said jewelry demand in India and China has been soft, and that will also negatively impact the gold price this year.

Leave a Comment