Author：Wall Street CN

Gold is facing one of the most critical technical tests since the start of the bull market in 2024. After a sharp sell-off triggered by overcrowded momentum trading, gold prices have retreated to near the steep trendline from last September and tested the 50-day moving average in a mini flash crash overnight.

According to The Market Ear analysisGold prices must stabilize around $4,600 (with a fluctuation of $50) to maintain its constructive market structure.The current decline is mainly due to excessive "fear of missing out" (FOMO) trading in the previous period and a lack of downside risk management. The Relative Strength Index (RSI) has plummeted from 91 to 46, indicating that the market has quickly shifted from being extremely overbought to its lowest oversold level since August last year.

However, the fragility of the market structure remains a concern. Citi research points out that gold holders have accumulated approximately $20 trillion in paper profits over the past three years, while the inflow of funds driving this round of price increases is only about $1 trillion.This means that just 5% of profit-taking would be enough to offset all global physical demand, and this huge amount of existing profit-taking is like a "Sword of Damocles" hanging over gold prices.

While there is still support in the short term, institutions have become more cautious about the medium-term outlook. Citi maintains its target price of $5,000/oz for the next 0 to 3 months, but expects gold prices to fall back to $4,000 in 2027, a drop of up to 20%, as geopolitical risks subside in the second half of 2026 and the Fed's independence is confirmed.

Key technologies and risk management

From a technical perspective, gold is currently in a zone that it must hold in the short term. The Market Earn points out that since the start of the bull market in 2024, gold prices have consistently shown strong support and rebound potential at the 100-day moving average.The current focus is on the $4,600 level. If gold prices are forced to fall below this level, the next key level to watch will be around the 100-day moving average at approximately $4,250.

Market participants' sentiment is being tested. Many traders hoped to exit at breakeven during the latest sell-off, but this exposed a lack of genuine risk management frameworks among most participants. Analysis points out that when trading strategies fail, many default to "hope," while the primary concern in trading should be avoiding sharp drawdowns rather than obsessing over the correctness of the direction. Furthermore, the subsequent movement of Shanghai gold futures will be a key indicator to watch closely.

Trillions of dollars in hot money and market structural imbalances

according to As previously reported by Wall Street Insights, Citigroup's research revealed the current extremely unbalanced structure of the gold market. The core driver of the recent gold price surge from $2,500 to $5,100 was investor capital allocation excluding central banks, amounting to approximately $1 trillion. In contrast, the physical gold market is far too small relative to the total global wealth to support such a large-scale asset allocation shift.

Looking ahead to the medium term, several geopolitical and economic risks supporting gold prices are expected to ease in the second half of 2026. Citigroup estimates that about half of the risk factors supporting gold allocation will disappear by the end of the year. The bank forecasts a gold price of $5,000 in the first quarter of 2026, followed by a decline each quarter: $4,800 in the second quarter, $4,400 in the third quarter, $4,200 in the fourth quarter, with an estimated average price of $4,600 for the year.

In its scenario analysis, Citigroup considers the baseline scenario (60% probability) to be a decline in gold prices to $4,000/oz by 2027. In contrast, the bullish scenario (20% probability) targets $6,000, while the bearish scenario (20% probability) could see gold prices fall to $3,000. Furthermore, historical experience suggests that gold tends to be the first to fall during major US stock market corrections caused by the bursting of the AI bubble or an economic recession, adding an extra layer of risk for investors.