Gold approaches first key support level.

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Gold is facing one of its most crucial technical tests since the bull market began in 2024. After a wave of intense selling triggered by excessively crowded momentum trades, gold prices have fallen back to near the steep trendline seen since September last year, and tested the 50-day moving average during a mini flash crash overnight.

According to The Market Ear analysis, gold must stabilize around $4,600 (plus or minus $50) to maintain its constructive market structure. The current drop was mainly triggered by excessive “fear of missing out” (FOMO) trades earlier and a lack of downside risk management. The relative strength index (RSI) plunged from 91 to 46, indicating the market shifted rapidly from extremely overbought to the lowest oversold level since August last year.

However, the fragility of the market structure remains concerning. Citi Research points out that over the past three years, gold holders have accumulated unrealized gains of up to about $20 trillion, while the capital inflows that supported this round of price rise are only around $1 trillion. This means that a mere 5% profit-taking could offset all global physical demand; this enormous unrealized gain is like a “Sword of Damocles” hanging over the gold price.

Although there is still short-term support, institutions have grown more cautious about the mid-term outlook. Citi maintains a target price of $5,000/oz over the next 0 to 3 months, but expects gold to fall back to $4,000 in 2027—a drop of about 20%—as geopolitical risks fade in the second half of 2026 and the Fed's independence is affirmed.

Key Technical Levels and Risk Management

Technically, gold is in an area that must be defended in the short term. The Market Ear notes that since the bull market began in 2024, gold has consistently shown strong support and rebound ability at the 100-day moving average. The current focus is the $4,600 level, and if gold is forced below this, the next key watch point drops to around the 100-day moving average near $4,250.

Market participants’ sentiment is being put to the test. Many traders hope to exit at their entry price in the latest selloff, but this exposes the general lack of a true risk management framework among most participants. Analysis points out that when trading strategies fail, many default to “hope,” but in trading, the primary thing to avoid is large drawdowns, not insistence on directional accuracy. In addition, the subsequent trend of Shanghai gold futures will be a key indicator to watch closely.

Trillions in Hot Money and Market Structure Imbalance

According to a Wallstreetcn previous article, Citi’s research reveals the current extreme imbalance in the gold market structure. In the process of gold prices rising from $2,500 to $5,100 in this round, the core driver was investor capital allocation excluding central banks, amounting to about $1 trillion. In contrast, the physical gold market is far too small relative to global wealth to bear such large-scale asset allocation shifts.

Looking ahead to the medium term, many geopolitical and economic risk factors supporting gold prices are expected to ease by the second half of 2026. Citi estimates that about half the risk factors supporting gold allocation will fade this year. Citi predicts gold prices at $5,000 in Q1 2026, then falling each quarter: $4,800 in Q2, $4,400 in Q3, $4,200 in Q4, with an annual average of $4,600.

In scenario analysis, Citi sees the baseline scenario (60% probability) as gold prices retreating to $4,000/oz in 2027. Bullish scenario (20% probability) sees prices reaching $6,000, while bearish scenario (20% probability) could see gold fall to $3,000. Additionally, historical experience suggests that in major US stock market corrections caused by AI bubble busts or economic recessions, gold often declines first, adding extra risk considerations for investors.

Risk Warning and DisclaimerThe market carries risks, investment requires caution. This article does not constitute personal investment advice and has not taken into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific situation. Investing based on this information is at your own risk. ```