Gold Prices Recover After a Catastrophic Sell-Off
Yesterday, while analysing the silver price chart, we described a fundamental shift in supply and demand dynamics that likely became the key driver behind the sharp decline in prices.
This same reasoning can likely be applied to the gold market, which experienced a synchronous and dramatic sell-off. From the A peak on 29 January near $5,570, the gold price (XAU/USD) collapsed to the B low on 2 February below $4,420 ? a drop of around 20%:
→ ?Smart money? locked in profits on long positions and switched to selling at market;
→ retail speculators were forced to close long positions at a loss, while the liquidation of previously leveraged trades accelerated the cascading decline.
On 26 January, when analysing gold price movements, we:
→ highlighted that the market was extremely overbought;
→ noted, however, that abandoning bullish expectations prematurely would be inappropriate without a major catalyst.
It now appears that the A→B collapse may have been precisely such an event.
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