After several months of surging prices and rising investor interest, gold prices suffered a pullback during a recent sell-off. Fortunately, the pullback seems like a minor dip in gold’s bullishness that was driven mostly by modest gold futures selling.
Similar periodic flares of bearishness are critical to keeping sentiment balanced as commodities such as gold experience an upleg.
The precious metal has trended bullish for the past several months, thanks to increased investor interest in its safe-haven appeal. With the ongoing Gaza crisis triggering fears of a wider conflict that could impact global oil prices, investors are increasingly turning to gold to add some stability to their portfolios and protect their assets.
Gold prices surged in the wake of Hamas’ initial attack and have remained high in the following months. The Houthi attacks on merchant ships crossing the Red Sea trade route and subsequent reprisals by the United States and the United Kingdom have also caused gold prices to surge in recent weeks.
Gold’s young upleg began in early October after an 11.3% sell-off. The market defines correction-grade sell-offs as sell-offs between 10%–20%, and pullbacks as sub-10% sell-offs. The precious metal’s most recent upleg resulted from last September’s anomalous violent breakdown.
Three stages of progressively larger gold purchases typically drive major gold uplegs starting with gold-futures short covering followed by larger gold-futures buying followed by massive stage three gold buying. Increased rates of unsustainable selling inevitably led to major mean-reversion buying and caused gold prices to surge even higher through most of October and November. Gold prices reached two all-time highs in early and late December, with the early December record representing the precious metal’s highest closing price in more than three years.
Gold peaked in late December at $2,077, representing a 14.2% upleg over more than two months that wasn’t very significant by modern standards and didn’t result in gold being overbought. Overboughtness is a major sign that a gold upleg is about to top out and is typically determined by looking at gold price levels relative to their trailing 200 dma (day moving averages).
Over the past five years, gold has seen several large toppings that stretched to more than 15% over its 200-day moving averages. However, the precious metal was just at 6% over its 200dma in late December, suggesting that it was nowhere close to being overbought.
Despite the recent price pullback, market conditions have ensured that gold prices will likely remain high for the near future.
The existing bullish market conditions may provide the tailwinds that exploration companies such as Reunion Gold Corp. (TSX.V: RGD) (OTCQX: RGDFF) need in order to see more investor funds directed into their operations that are focused on identifying new sources of gold supplies to feed the growing market.
NOTE TO INVESTORS: The latest news and updates relating to Reunion Gold Corp. (TSX.V: RGD) (OTCQX: RGDFF) are available in the company’s newsroom at https://ibn.fm/RGDFF
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