Gold peaking too early in the cycle?

Gold (XAU/USD) daily chart

Gold surged to a fresh all-time high in thin trading earlier today, touching $2,148 but has now dropped by more than $80 in a stunning reversal as we get into European trading. The fall sees gold sit 0.4% lower on the day to $2,062 and slumps back below the 2020 and 2022 highs around $2,070-75.

On the month, gold is still up by 1.4% at this stage but technicals are starting to look a little shaky especially if the above levels hold on the monthly chart. Traders have priced in a considerable amount of central bank easing for next year already and it might be tough to price in much more than that in the months ahead.

Both the pricing for the Fed and ECB sees something along the lines of four to five rate cuts and that might be a bit of a stretch unless inflation continues to come down significantly in Q1 2024. It could still happen but it is important to realise that we are not there yet.

So, is gold peaking too early in the cycle?

I still like gold's attractiveness in the long run and once we do actually get into the central bank easing cycle. But I wouldn't blame traders for profit-taking at this stage, especially since the run higher from the lows in October.

That being said, January is the best seasonal period for gold and that could still allude to further gains for the precious metal to kick start the new year at least.