By Daniela Hathorn, senior market analyst at Capital.com
It’s been a bus busy few days in the markets and investors are trading with caution as the magnitude of the moves leave sentiment slightly fragile.
Precious metals have been in large part the main stars of the current meltdown episode with gold and silver dropping 21% and 41% respectively in three sessions, driven mostly by positioning dynamics. Following an extended rally, market participants had built up crowded long exposure, while some bullion banks and institutional players were reported to be heavily short at elevated price levels. As prices stall, these dynamics likely exacerbated downside moves, with stop-losses triggered and momentum fading, prompting a sharp but technically driven correction.
This positioning-led adjustment has unfolded against a backdrop of thin liquidity and heightened sensitivity to macro headlines, amplifying intraday volatility. Importantly, the pullback appears less reflective of a fundamental shift in the outlook for precious metals and more indicative of a near-term reset in positioning, as markets await clearer confirmation on the trajectory of rates and real yields.
GOLD:
The pullback in gold was dramatic to say the least, but not unexpected. Several indicators had been flashing warnings signs at the extreme levels of overbought that were present as the price extended into a 7-day uninterrupted rally from 4,600 to 5,600 in the week prior. The RSI has extended far above the overbought levels seen in the last quarter of 2025 when the bullish momentum had already overheated into a correction. This time the pullback has been deeper than before, then question now is whether it’s enough to reset the bullish appetite or if there is still further room to drop.
For now, 4,400 stands as the bottom of the pullback so this will be the key support level to watch out for if the pullback continues. Before then, 4,658 – which served as the close on Monday and daily low on Tuesday – may act as a key test for further bearish appetite, as a drop below this level may convince traders that more downside is ahead. On the flipside, a move back above 5,000 will likely be key for confirmation that the bullish trend has resumed.
XAU/USD (Gold) daily chart:
Past performance is not a reliable indicator of future results.
SILVER:
Unlike gold, silver had faced some resistance in the uptrend prior to the pullback, with several daily candlesticks highlighting increased selling pressure. The fact that it derives some of its momentum from its use in industrial applications leaves silver slightly more sensitive to economic factors than gold. The speed and steepness of silver’s rise made it more vulnerable to a sharp pullback, even though its longer-term fundamentals remain constructive.
The drop from 118 to 71 has helped reset some of the overbought conditions after a highly speculative run that has been going on since late 2025. Short-term support is likely to remain between 71 and 80 with potential for another break above 90 as a key signal that the bullish momentum is back in play. Meanwhile, a drop below 70 could reignite further downside bias as the price readjusts to its fundamentals.
XAG/USD (Silver) daily chart
Past performance is not a reliable indicator of future results.
US DOLLAR:
The dollar faced pressure from renewed “sell America” trade, as investors reassessed US political risk ahead of the election cycle. Concerns that erratic or unpredictable policy direction—particularly around trade, fiscal policy and institutional independence—could reintroduce volatility had encouraged some diversification away from US assets. The move was exasperated by further talk about Japanese intervention in the Yen, which pushed USD/JPY firmly lower.
However, the dollar has stabilised and rebounded modestly in recent sessions as markets reassess the extent of near-term downside. A firmer tone in US Treasury yields, alongside renewed demand for dollar liquidity amid cautious risk sentiment, has helped underpin the move. In addition, the absence of fresh policy shocks has prompted some short-covering, allowing the dollar to recover lost ground even as broader questions around US political risk and the medium-term “sell America” narrative remain unresolved.
The daily chart shows how the selloff in the US dollar index has become overstretched with the RSI dipping to its lowest level since April last year. The short-term bias seems to remain on the upside; however, resistance lies ahead if the price can move past 97.5. The zone between 98.6 and 99.22 is likely to continue to attract two-way trade, potentially offering further downside pressure.
US dollar index (DXY) daily chart
Past performance is not a reliable indicator of future results.
