Gold (XAUUSD) Price Forecast: Gold Market Breakdown Eyes $4,041 Target

Gold Plunges in Largest One-Day Loss Since October: $494 Decline Could Be on the Horizon

Spot gold (XAUUSD) is down sharply on Monday, posting its largest one-day loss since October 21. That one eventually led to a $494.98 loss in 6 days. If you chop $494.98 off Friday’s high at $4536.75, that gives us a target of $4041.76 on January 6. That will also put us on the weak side of the 50-day moving average at $4171.59. So let’s see how this swing plays out.

At 19:17 GMT, XAUUSD is trading $4335.09, down $198.12 or -4.37%. This is up slightly from an intraday low of $4302.11.

Year-End Profit-Taking and Portfolio Rebalancing Drive Precious Metal Selloff

My best guess is that today’s move is related to end-of-the-year position-squaring, rebalancing of portfolios, and/or profit-taking. One thing the retail investor forgets is that to some, trading gold is a business and businesses have to book profits.

Weak Rally from October Highs Raises Red Flags About Market Strength

The break also brings up the issue of value. The gain from the last major top on October 20 at $4381.44 to the December 26 top at $4536.74 was only $155.30, a lot less than today’s loss.

Gold Breaks Below Key Resistance Level: Old Tops Becoming New Bottoms?

One other thing that concerns me is the break back under the previous top at $4381.44. There is an old adage that “old tops tend to become new bottoms.” If a new bottom doesn’t develop around this old top, then we can conclude that those who bought the breakout over $4381.44 are trapped, holding on to losing positions. This is where the fun starts.

Trapped Long Positions Could Trigger Deeper Correction to 50-Day Moving Average

If the market is in the strong hands of sellers, then they are going to make the weak longs pay to get out. With some of the losers likely dollar cost averaging down to soften their losses, the strong sellers could drive this market into a value area like the combination of the 50% level at $4211.60 and the 50-day moving average at $4171.60.

When Short-Term Gold Traders Become Reluctant Long-Term Investors

The fundamentals haven’t changed, but this move highlights the difference between analysis and trading. There is another old saying that “it only takes a loss to turn a short-term trader into a long-term investor.” So now I suspect the trade is going to get ugly for a few weeks as they sort out this bloodbath.

Hedge Fund Margin Calls Could Spark Stock Market Liquidations

Hedge funds too can get caught on the wrong side of the market, and that could mean margin call selling, which usually leads to the liquidation of stocks. Interesting times ahead for sure.

Monthly Reversal Pattern in Play If Gold Falls to November Lows

Technically, there was no closing price reversal top on Monday. We can’t get a true reversal top on the weekly, but a monthly closing price reversal top will be in play if the market continues to plunge to the November close at $4215.82. But we’ll worry about that price if it gets there.

Gold Price Targets: Watching Key Support Levels at $4,211 and $4,041

In the meantime, let’s look at the immediate picture. Given the current momentum and the failure at $4381.44 and $4350.27, I see this market plunging further into $4211.60 to $4171.55 first, then possibly into the swing chart target at $4041.76.

More Information in our Economic Calendar.