Gold outlook: The downside is still very vulnerable despite today's strong bounce

Gold

Gold extended sharp drop and fell to the lowest in one month, after trading on Monday started with about $100 gap lower, signaling that negative sentiment (after Friday’s biggest daily drop in over four decades), persists.

De-escalating tensions over Iran and initial signals that war in Ukraine might be heading towards its end, contributed to fresh selling, with speculations that big names were also in play to significantly lower metal’s price.

The cocktail of key factors pushed the price significantly lower, though on the bigger picture this still looks like a healthy correction of larger rally, as today’s spike low ($4402) found footstep just above 50% retracement of $3120/$5598 (May/ January upleg).

Today’s strong bounce from new low at $4402 (approx. $300) signals growing bids, with close above cracked Fibo 38.2% level ($4652), along with formation of bull-trap, needed to keep in play hopes of an end of potential further recovery.

However, more work at the upside will be still required to validate such scenario (close above Fibo 38.2% of $5598/$4402 pullback) while filling today’s gap and sustained break above $5000 (psychological / 50% retracement) would generate stronger bullish signal.

Negative scenario, on the other hand, may see today’s bounce as positioning for fresh push lower, as near-term action remains weighed by Friday’s massive bearish candle, while overall sentiment is still predominantly negative, due to weaker key fundamental factors, as well as existing fears of more losses after panic selling in past two sessions.

Lower triggers lay at $4359 (50% retracement) and $4348 (top of rising thin daily cloud, spanned between $4348 and $4218), with break here to generate fresh bearish signal and unmask nest targets at $4067 (Fibo 61.8% of $3120/$5598) and $4000 (psychological).

Res: 4859; 4900; 5000; 5100.

Sup: 4402; 4348; 4218; 4170.