After knocking on the door of 2800, gold started to fall rapidly. While most economists were expecting a move toward $3000 with the Trump trade, gold instead dropped by $253 in just two weeks. Now, it has started to recover, reclaiming the 2600 level. Two key questions arise: why did gold fall so sharply, and is the downward move over?
(COT Managed Money Gold Positions – Gold ETF Holdings)
Gold’s massive move from 2100 to 2800 was driven largely by hedge fund positions, ETFs, which had been predominantly short for over a year, switched to the long side during the summer, further fueling the upside momentum. However, both ETFs and managed money positions have decreased rapidly since the final week of October, putting significant pressure on gold.
The markets had anticipated that the Trump trade would benefit gold, and smart money seized this opportunity to take profits and reduce their positions. If this trend of position resizing continues, the pressure on gold is likely to persist. However, this may present a buying opportunity for those who missed the earlier gold rally.
(XAUUSD Daily Chart)
XAUUSD tested the 23.6% retracement level after falling below the yellow trendline and reacted upward, regaining both the 2600 level and the trendline. So far, the upward move appears to be just a reaction, but holding above 2600 and the 23.6% level will be an important signal for further upside potential.
In the coming days, markets will closely watch the COT report, ETF flows, and U.S. bond movements alongside gold’s price action. If the pace of position reduction slows and the 2600 support holds, momentum could start to shift back in gold’s favor. However, if the position reduction reflects a broader shift in market positioning rather than mere profit-taking, gold could face significant challenges, especially given the slowdown in central bank demand globally relative to the last two years.
