The gold market is starting to look increasingly unstable. The metal is trading below most short-term moving averages, and futures market position data shows a rise in bets on a decline from large hedgers.
Against this backdrop, some analysts allow for a deeper correction. The technical picture points to a likelihood of a further drop of about 6% if the key support level cannot withstand selling pressure.
Gold Has Lost Control of the Short-Term Trend
Since the beginning of the year, gold has been moving within a downward channel. After a recovery in March, the price began to fall again and gradually slipped below important short-term indicators.
Now the metal is already trading below the 20-day, 50-day, and 100-day EMA. In fact, buyers are holding only the long-term 200-day average, located around $4,366. This is the level the market now sees as the main boundary between a regular correction and a full-fledged trend reversal.
Losing several EMAs in a row usually indicates weakening short-term demand. Especially if the price cannot quickly return above the broken zones.
Major Hedgers Have Started Actively Increasing Shorts
Additional pressure is being created by CFTC data on the futures market. The latest Commitments of Traders report showed a sharp divergence between the actions of large hedgers and speculators.
Commercial market participants added more than 10,800 short contracts in a week. Their share already exceeds 71% of open interest. These are mining companies, processors, and other participants in the physical gold market. They are often called ‘smart money.’
At the same time, speculative funds, on the contrary, continued to open long positions. Such a split between professional hedgers and market speculators has historically often appeared near local tops.
The Options Market Also Shows Caution
A similar picture has begun to appear in the GLD options market—the largest gold ETF. Although call options still dominate, investors are gradually increasing protective put positions.
The put/call ratio rose from 0.47 in February to 0.58 by mid-May. At the same time, trading volumes of puts and calls have almost equalized. This shows that market participants have started to hedge more actively against a decline.
Options volatility also remains elevated. For the market, this is a sign of growing nervousness around gold’s next move.
Geopolitics Is Not Helping Gold for Now
Usually, rising tensions in the Middle East support gold as a safe-haven asset. However, the situation now looks more complicated.
The conflict around Iran is increasing instability in the oil market and simultaneously affecting the dollar through inflation expectations. As a result, gold is not receiving a full-fledged boost either from a weaker dollar or from classic safe-haven demand.
Over the past month, the metal has fallen by about 6.8%, although on a yearly basis it is still up about 36%. This shows how the market is now squeezed between conflicting macro factors.
A Reversal Pattern Is Forming on the Chart
The technical picture has also started to deteriorate. On the daily chart, analysts highlight the formation of a ‘head and shoulders’ pattern.
The left shoulder appeared in early April, the top of the pattern formed around $4,890 at the end of the month, and the right shoulder—in mid-May near $4,775. The neckline runs around $4,308.
As long as the price stays above this zone, the pattern remains unconfirmed. But if there is a full breakout, the market may get a signal for a further decline to around $4,038. This corresponds to a potential correction of about 6.3%.
Which Levels Matter Most for the Market Now
The nearest support level, according to analysts, is the area around $4,474. Below are the zones at $4,393 and then the neckline itself around $4,308.
To restore a bullish scenario, gold first needs to consolidate above $4,775 and then reclaim the $4,890 level. Only then will the current reversal structure be canceled.
For now, the market looks rather cautious. Major players are strengthening their protection, options show increased hedging, and the price remains under pressure from technical levels.
What's Next?
The coming weeks could be crucial for the gold market. If the level around $4,308 holds, the metal will be able to maintain its long-term growth structure and try to recover.
But if sellers push through this zone, the market could quickly move to a deeper correction. Especially against the backdrop of high rates, a strong dollar, and growing caution among major players.
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