Market analyst Matt Simpson observes a significant shift in momentum for gold, which has tumbled 5.6% from recent highs. After warning last week that the rally looked like a "dead cat bounce," the subsequent selloff has validated that bearish outlook, with two of the last three sessions forming bearish engulfing patterns.
Bearish Momentum Builds: The technical landscape has decisively shifted in favor of sellers, who are now eyeing a move towards the key support level of $4,800. This zone is critical; a break below it would confirm the dead cat bounce, while a hold could signal a healthy pullback within a choppy consolidation phase.
Sentiment Reaches an Extreme: Options market data reveals a striking shift. The 10-delta 1-week risk reversal, a measure of tail-risk hedging, has plummeted to its most negative level since December 2024. This surge in demand for puts (bearish bets) over calls (bullish bets) suggests traders are either bracing for further downside or that hedging activity has simply become stretched.
Hedging or a Harbinger? Interestingly, the last time options skew was this negative, gold prices rallied. This leads Simpson to lean towards the idea that we are seeing a sentiment extreme in hedging rather than positioning for a sustained, long-term sell-off.
Mixed Signals from COT Data: The latest Commitments of Traders (COT) report shows that gross short positions are starting to increase, and net-long exposure among large speculators has fallen to a one-year low. While this doesn't scream "major pullback" yet, it's a trend bears will want to see continue.
Technical Outlook: A Choppy Range? The daily chart shows the bearish candles, but Simpson notes the selloff hasn't been as aggressive as a true dead cat bounce might imply. On the 1-hour chart, bullish RSI divergences and lower wicks hint at hesitation from sellers.
The Forecast: The immediate bias is for a test of the $4,800 support. Simpson suspects bulls will view this level as a value zone and attempt to buy the dip, pushing for a retest of $5,000. However, bears are expected to fade rallies near $5,000, potentially trapping gold in a choppy $4,800–$5,100 range for the time being. A decisive break above $5,000 would bring the $5,140 highs back into focus.
