Gold Price Outlook: Dead Cat Bounce Risk as Bearish Signals Build

Gold prices are attempting to stabilise after a sharp selloff, but the recovery lacks conviction. While a bullish hammer on the weekly chart hinted at support, follow-through has been weak and price action on the daily timeframe points to a potential dead cat bounce.

At the same time, options markets continue to lean bearish, with traders favouring downside protection despite the recent rebound. With oil prices elevated, geopolitical uncertainty lingering and the US dollar holding firm near highs, the macro backdrop is hardly supportive for a sustained rally.

Unless a clear risk-on catalyst emerges, gold’s upside may remain limited—leaving the 4,000 level as a key downside target for traders.

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Gold Price Analysis: Bearish Signals Build as Dead Cat Bounce Emerges

Macro Drivers: Oil, Geopolitics and Risk Sentiment

Risk received a minor boost during Tuesday’s Asia session following headlines that President Trump had told aides he was considering ending the war on Iran. Yet the major caveat that kept a lid on a true risk-on recovery is that he is considering doing so without reopening the Strait of Hormuz.

We can speculate whether this is a test balloon to gauge reaction or a failed attempt at a genuine pump. But if true, it would be deemed a massive own goal by President Trump, as it means the only tangible outcome would be persistently high oil prices and an incoming wave of inflation.

We’ll wait for further details to emerge. But the fact such headlines are even surfacing should raise concern, because from where I’m sitting, Trump has effectively signalled he has a weak hand—regardless of whether he had a strong one to begin with.

Source: CME, ASX20, NYEX, ICE, TradingView

Market Snapshot: Equities Firm, Oil Elevated, Gold Bounce Lacks Conviction

• Wall Street futures are higher, with the Dow Jones (0.8%) leading the way ahead of the Nasdaq (0.74%) and S&P 500 (0.64%)
• The Nasdaq is trying to hold above the double bottom that formed in August, though a break of today’s low brings the August low into focus
• Nikkei futures are effectively flat after handing back its 2% gains on the headlines earlier
• SPI 200 (ASX 200 futures) are up 0.6%, though it does seem to be trying to carve out a higher low above the November low – though a genuine risk-on signal is required to help it rally from here
• WTI crude oil is down -0.14% and handed back the day’s prior gains, though prices remain elevated without little chance of the global oil supply being replenished any time soon
• Gold futures are up 0.8% on the day, though the recent lacklustre performance from bulls could suggest a dead cat bounce could be playing out to indicate another leg lower

Gold Futures (GC) Technical Analysis

Weekly Chart: Bullish Hammer Fails to Inspire Follow-Through

The weekly chart shows that gold’s rapid selloff was halted by an elongated bullish hammer last week. Given gold fell in tandem with Wall Street sentiment, we could expect investors who flocked to cash to return from the sidelines and bid gold alongside stocks should a risk-on trigger emerge. I’m just not convinced we’re set to see a meaningful one yet—unless President Trump somehow reopens the Strait of Hormuz. I therefore see any near-term upside for gold as limited.

Note we’re yet to see prices fall to 4,000—its next major support level for bears to target or bulls to view as a discount.

Daily Chart: Dead Cat Bounce Taking Shape

The daily chart shows a potential dead cat bounce forming, with choppy price action grinding higher in a lacklustre fashion. While a solid bullish pinbar helped prices rebound above the 200-day EMA, bulls are struggling to retest the 100-day EMA or the 4,700 handle—a level that could cap as resistance or tempt bears to fade the move.

And if Wall Street suffers another blow, gold prices could track lower and see momentum accelerate back towards the 200-day EMA. A break beneath it would bring the 4,179 volume point of control (VPOC) and the 4,000 handle back into focus.

Source: ICE, TradingView

Gold Options Positioning: Bearish Skew Signals Downside Risk

Options traders aren’t ‘buying’ into the recent bounce in gold. Risk reversals remain firmly negative, which tells us traders are still paying up for puts over calls—basically hedging against further downside. At the same time, implied volatility has picked up again, suggesting markets expect bigger moves ahead. But importantly, that volatility is skewed to the downside.

Ultimately, spot prices are trying to stabilise yet options traders are still positioning for weakness

That divergence is worth paying attention to. It often shows up before the next directional move—and right now, options markets are leaning bearish.

Source: COMEX, LSEG

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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