Gold Prices Plunge from Historic Peak

As shown by the XAU/USD chart, yesterday gold prices reached a new all-time high, surpassing the $3,870 level for the first time. This rise was supported by concerns over the high likelihood of a US government shutdown.

According to media reports:
→ Vice President J.D. Vance stated that the US is heading towards a government shutdown, blaming the Democrats.
→ “We have very large disagreements,” said Senate Minority Leader Chuck Schumer.

Fears over the potential impact of a shutdown boosted demand for safe-haven assets, including gold. However, today XAU/USD has dropped sharply. What might this mean?

Technical Analysis of the XAU/USD Chart

In our previous analysis of gold prices, we drew an ascending channel, which remains intact.

Within the context of this channel, it is worth noting that each time the price exceeds its upper boundary, this tends to trigger a correction, a consequence of the market being overbought (in most cases confirmed by the RSI indicator).

Yesterday, during heightened activity in the US trading session, gold prices moved significantly above the upper boundary of the channel, leaving the market vulnerable to a correction. For this reason, today’s decline during the European session can be explained by traders reassessing risks, as well as profit-taking after a rise of more than 11% since the start of the month.

Note the speed of the decline — it indicates strong conviction among the bears. Overall, yesterday’s rise combined with today’s sharp fall can be interpreted as a bearish engulfing pattern. This strengthens the case for a deeper correction towards the psychological $3,800 level, where the median of the channel lies (possible support levels are marked in purple).

Therefore, it is possible that bulls exhausted their momentum yesterday, and for an upward trend to resume, another consolidation period with the formation of a “bull flag” pattern may be required.

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