Gold: The "big correction" risk after the surge is approaching

Author: TVBee

Beware of the risk of a correction in gold!

Technical indicators show gold is overbought

Although, for assets like gold, technical signals may often become invalid.

However, the monthly RSI is at 95.6, weekly RSI at 82.8, and daily RSI at 88.5, all indicating overbought conditions. The degree of overbought on the monthly chart should be the highest in 55 years.

Remarkable historical similarities

First, comparing on a logarithmic scale, current conditions are somewhat similar to those before Reagan took office in 1979.

Second, back then the US economy was experiencing stagflation; now, CPI is relatively high.

Third, it was the Iran hostage crisis (after the Islamic Revolution erupted, the pro-American Shah Pahlavi was overthrown and exiled, and Iranian students stormed the US embassy, taking diplomatic personnel hostage and demanding the US hand over Pahlavi).

Now, there is internal turmoil in Iran, with the US applying military pressure and the possibility of open conflict.

Fourth, many actions by Trump, including the MAGA slogan, are somewhat similar to Reagan’s early days in 1980.

Final thoughts

By comparing technical signals and historical events, it’s possible that as the US-Iran situation escalates, gold could continue to rise.

However, most of Trump’s actions this year have been quick and decisive, so there’s concern that the US-Iran situation could suddenly reverse (for example, Iran might unexpectedly cease resistance). After the conflict subsides, be cautious of a correction in gold.

From January to September 1980, gold declined and then rebounded. From September 1980 to June 1982, it fell continuously for nearly two years. It wasn’t until 2007–2008 that it returned to its previous high.

In the short term, it’s not recommended to short. The US government might enter a short-term shutdown around January 31, and the US-Iran situation remains unresolved.

But be cautious about chasing the rally! It’s not impossible to buy, but stay highly alert and closely monitor US-Iran developments.

(Note: Chart 1 uses logarithmic scale, Chart 2 uses linear scale; the monthly gold trend shows some similarities to Bitcoin’s bull top)