DBG's official website: Gold is overbought, but still well supported

Investors took some profits after gold prices hit a record high above $3,350 an ounce on Thursday after the Easter long weekend closed on Friday. While gold prices continue to look overbought, someDBG Dunbo official websiteAnalysts say the market is still on a solid upward trend.

Despite the selling pressure, gold prices have maintained solid support around $3,300.

David Morrison, senior market analyst at Trade Nation, described gold's price movements this week, including Wednesday's $100 rally, as a blowout top.

"Gold is up 13 per cent in a week, or $360, so investors should not be surprised by the current pullback," he said. "Gold also looks very overbought, with the daily MACD hitting its highest level since April 2011 and then prices peaking. That doesn't mean gold can't rise further, but buyers should be cautious at current levels."

The dollar will close at a three-year low of 99.49 this week, just as gold is showing resilience.

Christopher Vecchio, head of futures and forex at Tastylive.com, said gold should continue to benefit from further dollar weakness. He said that while the dollar is not expected to lose its reserve currency status anytime soon, President Trump's erratic trade policies have weakened the U.S. position in global markets.

"We're going back from Pax Americana to America First, which is a very different set of rules," he said. "There's no other currency to fill the reserve currency gap, so we're kind of stuck with the dollar, but we need something else. That's gold."

Currency analysts at Brown Brothers Harriman also expect the dollar to weaken further, which will continue to support gold's unprecedented rally.

Win Thin, head of global FX strategy at Goldman Sachs, said in a note on Friday: "We continue to believe that much of the recent weakness in the dollar is due to a growing loss of confidence in US policymakers and the negative impact of policy uncertainty on the US economy. As a result, we expect the dollar to continue to weaken and see any recovery in the dollar as quite fragile, regardless of US economic data."

In this environment, Vecchio said he still sees any decline in gold as a buying opportunity.

However, the near-term problem for investors is to determine where gold prices should be in the face of this unprecedented momentum.fxtmLukman Otunuga, a senior research analyst at The New York Times, pointed out that gold's rally above $3,350 has pushed gold prices up 28% this year, outpacing last year's 24% gain.

He said: "Gold continues to shine as fears of a global recession and trade tensions draw investors into the safe arms of precious metals. However, with gold heavily overbought, a technical pullback could be on the horizon before gold prices move higher. Depending on the strength of the pullback, gold could slide towards $3,250, $3,140, with the psychological level of $3,000 being an important support level. If $3,300 proves to be a reliable support level, gold could move towards the next psychological level of $3,400 and beyond."

Ole Hansen, head of commodity strategy at Saxo Bank, said he believes a sharp correction in gold prices is possible, but he doesn't expect that to happen next week.

"Gold will eventually pause and go through a $200- $300 correction, but it's not the right time yet because there are a lot of unresolved issues that have been exacerbated by Trump's recent attacks on Powell and could raise bond market risk a notch," he said.

President Trump complained on Thursday about Federal Reserve Chairperson Jerome Powell and the Fed's stance on monetary policy, adding to market uncertainty. Speaking at the Economic Club of Chicago on Wednesday, Powell maintained his neutral stance even as risks to economic activity increased, while emphasizing the growing threat of inflation.

Trump wrote on social media: "Federal Reserve Chairperson Powell, always too late and wrong, released a report yesterday, another classic, total'mess' report! The sooner Powell's dismissal comes, the better!"

The Fed's stance contrasts sharply with that of the European Central Bank, which cut interest rates on Thursday and signalled further cuts as inflationary pressures continue to ease.

Fawad Razaqzada, a market analyst at FOREX.com, said he sees a growing risk of gold price moves preparing for a longer period of consolidation, similar to other sharp rallies.

He pointed out that the price of gold is $1,275 above its 200-week moving average, a 61% premium.

"Unless macroeconomic conditions remain strongly supportive, it will be difficult to see such a wide gap continue," he said. "Yes, today's environment may bear that out, but it means reversion has the means to get things back on track."

Some analysts say that with a relatively light economic calendar, gold will continue to be sensitive to global trade and geopolitical headlines.