Saying that gold prices are at a 'phase top' is a comprehensive judgment based on various current factors, but it does not mean that the long-term bull market in gold has come to an end. It is more likely to mean that after reaching a historic high, gold needs some time to digest the gains and accumulate new momentum.
1. The 'repricing' of market expectations for Federal Reserve interest rate cuts (the most critical factor)
This is the primary driving force behind the recent correction in gold prices.
The logic before 1.1 (driving up gold prices): In the fourth quarter of 2023, the market widely expects the Federal Reserve to implement multiple rapid interest rate cuts in 2024. The expectation of interest rate cuts has weakened the dollar and reduced U.S. Treasury yields, which greatly enhances the appeal of non-yielding gold.
1.2 Current changes (leading to pressure on gold prices): entering 2024, the economic data released by the U.S. (especially employment and inflation data) continues to be strong, showing economic resilience. This makes the Federal Reserve not in a hurry to cut interest rates, forcing the market to delay and reduce expectations for the number and magnitude of interest rate cuts this year.
1.3 Impact: the anticipated 'turning point' leads to:
1.3.1 Strengthening U.S. dollar: high interest rates attract funds into dollar assets, strengthening the U.S. dollar index, thereby suppressing gold priced in dollars.
1.3.2 Rise in U.S. Treasury yields: especially the increase in real yields (nominal yields minus inflation expectations) raises the opportunity cost of holding gold (since gold itself does not yield interest).
2. Technical analysis shows 'overbought' and 'momentum exhaustion'
2.1 Overbought state: during the rapid rise in gold prices to new historical highs, technical indicators such as the Relative Strength Index (RSI) frequently entered the 'overbought range' (typically above 70). This indicates that market sentiment is too euphoric, buying power may be exhausted in the short term, and a technical correction is likely.
2.2 Key resistance levels: historical highs (such as around $2400 per ounce) are themselves a huge psychological and technical resistance level. Gold prices often encounter profit-taking sell orders when first reaching such levels, forming a phase top.
2.3 Need for consolidation: after such rapid increases, the market needs to 'digest' the gains through sideways consolidation or a certain degree of correction, allowing long-term moving averages (such as the 200-day moving average) to catch up and laying a healthy foundation for the next round of increases.
3. Speculative long positions are too crowded
According to data from the U.S. Commodity Futures Trading Commission (CFTC), at the peak of gold prices, the net long positions held by speculators such as hedge funds were at historically high levels.
Risk: when market sentiment turns, or if there are no further positive stimuli for prices to continue rising, these crowded long positions themselves constitute potential shorting power. Once they begin to collectively close positions, it will accelerate the speed and magnitude of the decline in gold prices. This is known as a 'long squeeze.'
4. 'Aesthetic fatigue' regarding geopolitical risks
Previously, the Russia-Ukraine conflict and tensions in the Middle East were significant forces driving the demand for gold as a safe haven.
4.1 Risk premium has been reflected: these geopolitical risks have already been priced in by the market and have persisted for a long time. Unless there are significant, unexpected escalation events (such as a broader war), their driving force on gold prices will marginally weaken, and the market will experience a certain degree of 'aesthetic fatigue.'
4.2 Phase relief: any brief easing of the situation may become a reason for funds to temporarily withdraw from gold.
5. Why is it a 'phase' top?
Using the term 'phase top' is very accurate, as it suggests this may not be the end of a long-term trend, but rather the beginning of a medium-term adjustment.
5.1 Long-term supporting factors still exist:
The ongoing gold buying spree by global central banks: in order to de-dollarize and diversify foreign exchange reserves, central banks in countries including China, Poland, and Turkey continue to buy gold, providing solid structural support for gold prices.
5.2 Global political and economic uncertainty: regardless of the outcome of the U.S. election, the trend toward fragmentation in global geopolitics is hard to change. Meanwhile, the high debt levels of global governments also pose long-term concerns.
5.3 Inflation may be sticky: although inflation is retreating, whether it can smoothly return to the Federal Reserve's 2% target remains in question. In the long run, inflation is still a friend to gold.
6. Highlight key points
6.1 Do not blindly chase highs: chasing after prices when market sentiment is euphoric and technical indicators are overbought carries high risks.
6.2 Focus on core driving factors: closely monitor U.S. inflation data (CPI/PCE), speeches from Federal Reserve officials, and non-farm payroll data, as these will determine market expectations for interest rates.
6.3 Waiting for better entry points: if one believes in the long-term logic of gold, then this phase adjustment may actually provide a healthier entry opportunity for investors who have not yet boarded. Attention can be paid to gold prices at key support levels (such as the 100-day moving average or previous important platforms).
6.4 Gradual positioning: adopting a strategy of gradual buying before the trend is fully clear is preferable to making a large investment all at once.
Gold prices show signs of a phase top due to 'cooling interest rate cut expectations' and 'technical overbought' conditions, but the long-term bullish fundamentals (central bank gold purchases, geopolitical risks, de-dollarization) have not been undermined. The current market is in a stage of adjustment from 'euphoria' to 'rationality.'
