Overbought Warnings Become Reality: Gold Falls Sharply
Gold experienced its deepest fall in years on Friday, a sharp reversal from a frenzied rally that had previously pushed prices to new records. Gold prices plunged by around 8% and breached the psychological $5,000 per ounce area, marking a brutal correction after a parabolic rally throughout January.
The gold rally over the past year has indeed broken numerous records and created extreme volatility. January accelerated everything: investors flocked to safe-haven assets due to concerns about currency depreciation, the Fed's independence issue, trade wars, and geopolitical tensions. But when the market is already "overbought," even a small trigger can trigger a major reversal.
The primary trigger for this correction came from the strengthening of the US dollar following news—now confirmed—that the Trump administration was preparing Kevin Warsh as the next Fed chairman. A stronger dollar is usually a burden on gold, especially after many investors had previously bought gold, reading Trump's signal that he was leaning towards allowing the dollar to weaken. As a result, profit-taking immediately surged when the market narrative changed.
According to Christopher Wong (OCBC), this gold move "validates" the classic warning: rising too fast can fall too fast. He believes the Warsh rumor was merely a trigger, while the actual correction was "due"—the market seemed to be waiting for a reason to cancel its already parabolic rise.
Despite the collapse, gold still recorded significant gains throughout January, approaching its sharpest monthly surge since 1980. Several technical indicators have also long been waving yellow flags—for example, gold's RSI, which briefly approached 90, a very rare level and signaling overbought conditions. With such high volatility, the market believes the volatility could continue, and the psychological level of $5,000 will remain a highly sensitive area. (alg)
Source: Newsmaker.id
