Gold Outlook: Dead Cat Bounce Risk Builds Near Highs

Gold’s rebound from 4,700 has been impressive, but price action near record highs suggests bulls may need to tread carefully.

Last week I was looking for gold to extend its bounce after it appeared to find support around 4,700. While I did not have a specific upside target in mind, this week’s price action suggests bulls may want to tread carefully.

The US CPI report is also due for release, which could deliver a bearish knock-on effect for gold if it comes in even slightly hotter than expected.

View related analysis:

Gold Futures (GC) Technical Analysis

Gold bulls have enjoyed a 16.3% rebound from the February low. Yet volatility is clearly declining as prices rise, suggesting bulls may be running out of steam. Gold futures volumes have also fallen throughout the rally, hinting that a corrective move could be brewing.

However, a deeper correction would require gold to take out the February low and extend the decline from the all-time high. If that were to occur, it could suggest we are witnessing a classic dead-cat bounce.

Source: CFTC, COMEX, LSEG

Gold Pullback Levels: VPOC 4,943 and 4,800 Handle in Play

For now, my base case is that gold holds above the February low, although momentum may soften in the near term. I do not see a catalyst bearish enough to trigger another sharp leg lower, and futures positioning suggests the selloff was driven more by long capitulation than aggressive short initiation.

Notice that the rally has stalled around the low of the spinning top formed at the record high. Gold traders are clearly watching the 5,126 level, and a break above it could pave the way for a move towards 5,270. However, I will be on the lookout for a bearish reversal candle on the daily chart or a swing high on the intraday timeframes, targeting at least the weekly VPOC (4,943) or the 4,800 handle.

That said, I suspect bulls are waiting on the sidelines to buy such dips and rejoin the broader uptrend. If so, that could limit gold’s downside and keep prices comfortably above the February low near 4,400.

Gold Futures Positioning | COT Report

Futures traders have been relatively cautious on gold’s rally since net-long exposure peaked in September 2024. While bullish exposure began to rise as prices surged towards $5,000, there has been a notable wave of long covering now that prices have tumbled and volatility has spiked.

Net-long exposure has fallen by around 80k contracts over the past two weeks, marking its fastest two-week decline in nine years. While gross shorts have perked up slightly, they remain lower overall – highlighting that the selloff is predominantly a function of long liquidation rather than aggressive new short selling.

That could help keep a layer of support under gold prices, even if price action is beginning to hint at a deeper pullback.

Source: CFTC, COMEX, LSEG

View the full economic calendar

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.