Analyst: Gold is being tested in a correction, these levels are critical!

Gold price continues to see selling pressure. However, according to a market analyst, this is where investors will see real courage in the market. In addition, the analyst states that he is closely monitoring some critical levels.

The recent price action of gold is a healthy and overdue correction!

As you can see from Kriptokoin.com**, gold rose above $2,448 in April. Thus, the shiny metal hit an all-time high. Over the course of this year, the gold market has risen by about $450. Market analyst Ole Hansen says gold is looking heavy as it has failed to make gains above $2,400 twice in the past two weeks. "From a trading psychology standpoint, it makes sense that some long positions that are on the lookout are starting to pull the plug off the table," Hansen says.

Gold prices fell as low as $2,304.60 overnight as low liquidity increased volatility in the market. However, prices rebounded in the North American session. In his latest research note on gold, Hansen considers the recent price action to be healthy. He also calls it a long overdue fix. Hansen adds that this selling pressure "will help determine momentum and managed money accounts, as well as the true level of underlying demand, which normally trades with a short term focus and will reduce long positions if the technical and/or fundamental picture changes."

The analyst also looks at the technical outlook for gold. Hansen notes that the first resistance is at $2,322. However, he says he is watching the key Fibonacci retracement level between $2,255 and $2,260. "Holding above this level will send a signal to the market that a pullback is nothing more than a weak correction within a strong rise trend," says the analyst.

A critical factor that continues to support gold is the breath of the rally. Hansen points out that even within this correction, investors are still holding on to solid gains. In this context, the analyst makes the following assessment:

The depth of the correction now unfolding will depend on whether the levels that will force hedge funds to reduce some of the 17.9 million ounces (557 tons) of net long position they have amassed below $2,200 in the four-week period through March 12 will be broken. The current price is well above these entry levels. However, it is safer to assume that these positions will be defended at significantly higher levels. So that's why we're seeing the biggest single-day drop in almost two years.

Ole Hansen also looks beyond short term surge. The analyst says that it continues to rise on gold in the long term. Hansen adds that the factors behind the breakout rally remain in place. Geopolitical tensions have stabilized in recent days. However, it has not yet eased up. At the same time, central banks continue to buy gold and move away from the US dollar.

Meanwhile, the Federal Reserve pushed back expectations of rate cuts. That's why market expectations support higher bond yields and a stronger U.S. dollar. However, Hansen notes that this has become a secondary factor in the market. Hansen says rising government debt in major economies will support gold even as bond yields rise. In this regard, the analyst makes the following comment.

Treasury yields are not necessarily negative for gold, as they increase the focus on overall debt levels and their sustainability.

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