Stock market weakness affects gold

Gold retreated over $100 from its all-time highs established earlier this month. Interestingly, this move down follows a pullback of similar magnitude in the U.S. stock market, which we have repeatedly referred to as a threat to gold’s spectacular performance; one minor detail to point out here is that this time around, gold seems to be falling in reaction to what has been happening in the stock market, unlike in previous corrections throughout 2023 and 2024, when gold either preceded weakness in stocks or did not react to it. But now, the stock market appears to be at a critical point of either breaking down or staging a recovery, with many big names reporting their earnings this week, which can help to achieve one of these objectives. If corporate results do not meet investors’ expectations and, by any chance, there are significant downgrades to future guidance along with announcements of new layoffs, then it is unlikely the situation will calm investors’ nerves and lead to recovery. Contrarily, it is more likely to produce more fear among market participants, which could inadvertently lead to more selling in the stock market, accompanied by weakness in gold.

Illustration 1.01

Illustration 1.01 shows the daily graph of XAUUSD and simple support/resistance levels derived from past peaks and troughs. The area between $2,000 and $2,075 acts as an important base in the case of a strong stock market selloff.

Illustration 1.02

Illustration 1.02 depicts XAUUSD’s RSI on the weekly timeframe. The yellow arrow indicates a bearish crossover, a worrisome sign for gold. The same crossover can also be observed on the daily chart; besides that, Stochastic and MACD also reversed to the downside.

Technical analysis gauge
Daily time frame = Bearish
Weekly time frame = Bullish (stalling with bearish signs)
*The gauge does not necessarily indicate where the market will head. Instead, it reflects the constellation of RSI, MACD, Stochastic, DM+-, ADX, and moving averages.

Please feel free to express your ideas and thoughts in the comment section.

DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not serve as a basis for taking any trade action by an individual investor or any other entity. Your own due diligence is highly advised before entering a trade.

Comment:

Profit-taking in gold continues amid stock market weakness; this is a concerning sign as it suggests a significant change in investor sentiment.