Spot gold prices experienced a significant drop on Monday, plummeting $32.04 to close at $2,359.24 per ounce, with intraday lows reaching $2,350.82 per ounce. This sharp decline followed a substantial rise on Friday due to speculation about a possible Federal Reserve rate cut in September.
Several factors contributed to the 1.34% decrease in gold prices. Analysts attributed the drop to increased risk appetite spurred by rising U.S. stock markets, leading to profit-taking among investors. Additionally, China’s central bank, the world’s largest gold consumer, did not purchase gold for the second consecutive month in June, further pressuring prices.
Bob Haberkorn, senior market strategist at RJO Futures, noted, “This looks like a lot of profit-taking, as U.S. stocks were strong in the early going, which has some competing factors with precious metals.”
On Monday, U.S. stocks hit new highs, with the Nasdaq and S&P 500 reaching record levels and the Dow hitting a one-month high. This market behavior came after spot gold had surged $34.38, or 1.5%, to $2,391.28 per ounce on Friday.
FXStreet analyst Christian Borjon Valencia pointed out that the return of risk appetite contributed to gold’s sharp decline after it reached a daily high of $2,391 per ounce. U.S. stocks rose while U.S. Treasury yields weakened. The continued suspension of gold purchases by China’s central bank also weighed on prices.
Data released on Sunday showed that by the end of June, China’s central bank held 72.8 million ounces of gold, unchanged from the previous month. In May, the central bank halted its 18-month-long spree of increasing gold reserves, which had a significant impact on gold prices.
Bloomberg analysts suggested that soaring gold prices might have deterred the central bank of China from buying more gold. In May, gold prices hit a record high above $2,400 per ounce, but have since weakened as investors adjusted their expectations for U.S. interest rate cuts.
Despite the recent dip, Haberkorn remains optimistic about gold’s prospects, citing expectations for Federal Reserve rate cuts. “The Fed’s observation tools show that the rate will be cut in September, followed by November and December, which is favorable for gold,” he said.
Last week’s U.S. non-farm payrolls data indicated a weakening labor market, reinforcing expectations of upcoming rate cuts by the Fed. The market currently estimates a 71% chance of a rate cut in September, with another expected in December.
This week, investors will focus on Fed Chairman Powell’s semi-annual congressional testimony, speeches from various Fed officials, and the release of the U.S. Consumer Price Index (CPI) data on Thursday.
Trading Strategies Post-Gold Crash
According to FXStreet analyst Christian Borjon Valencia, gold prices have retreated after breaking above the neckline of a head-and-shoulders pattern. After reaching $2,392 per ounce, gold prices fell towards $2,357 per ounce, indicating potential consolidation. The momentum suggests buyers are losing steam, with the Relative Strength Index (RSI) approaching the neutral 50 line. A break below this level could indicate increased selling pressure.
Valencia notes that if gold falls below $2,350 per ounce, further declines could target $2,300 per ounce. Should this support level fail, the next support zones would be the May 3 low of $2,277 per ounce, followed by the March 21 high of $2,222 per ounce.
Conversely, if gold climbs above $2,400 per ounce, further gains could be expected. The next resistance levels for gold are the year-to-date high of $2,450 per ounce, followed by the $2,500 per ounce mark. 
