There are many opinions when it comes to the question whether gold is overvalued. Last three months gold reached historical high and traded in consolidation leaving open question for further rise.
From fundamental point of view latest developments in global financial system set bearish note for the precious metal. Weakness in Europe have risen dollar’s value as investors stay away from euro denominated assets, thus lowering gold price. Another threat for gold price is slowing growth in main gold markets China and India which leads to low demand. Combination of above mentioned factors support current weakness of the commodity and short term outlook is negative.
Technically last few months gold consolidates and trades in technical triangle. Exit from this technical figure has two outcomes – braking up or downward. Usually the following move coincides with the triangle height (in our case approximately $450). After last three sessions the price broke down the triangle, which could trigger steep correction to $1200 in next few months. Close under the strong support on a daily chart - 200 MA (at $1618) is confirmation for prolonged bear move. Next major support would be the 200 MA on a weekly chart - approximately $1200 suggesting extremely bearish move.
|Possible gold correction to unfold|