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It’s hard to imagine a more perfect storm to drive gold prices higher.
A conflict in the Middle East is spiraling out of control. Soaring energy prices are sure to spark rising inflation.
And yet, gold prices are actually trading lower compared to just before the outbreak of war between the U.S., Israel, and Iran.
Gold’s price is decoupling from its traditional drivers, and a new force is pushing gold around.
That’s good news for traders who understand how to take advantage of gold’s volatility with an active approach.
Let’s look at why gold is becoming subject to wild price swings – and the key levels you need to monitor…
Demand for gold has historically relied on its reputation as a store of value (given the difficulty of increasing the supply of gold). It serves as a safe haven during times of uncertainty.
In times of inflation, currency debasement, rising debt, or all-out war, investors flock to gold.
But gold’s traditional utility is being questioned amid its surging popularity. Institutional and retail investors alike have been buying gold at extreme levels that don’t make much sense.
Physically backed gold ETFs saw a record $18.7 billion in inflows in January. That follows $101 billion in inflows in 2025 and pushes total assets in gold funds to a record $701 billion.
Central banks are also boosting their allocations and hold over 20% of reserves in gold. That’s the highest allocation from central banks in over 20 years.
As funds pour into assets tracking gold prices, it’s starting to drive the type of price swings you’re used to seeing in meme stocks. As I’ve shared on my podcast, the surge in gold buying has reached absurd levels, which makes it difficult to tell where it’s going next.
Back in January, for example, gold prices saw a single-day decline of 12%. It was the largest daily loss in over 40 years. And earlier this year, a measure of gold price volatility hit its highest level since the pandemic.
Happily, as rising volatility drives wild swings in gold, that’s boosting opportunities for short-term traders.
With no shortage of money flows and investor sentiment shifts to throw gold prices around, gold is becoming an ideal environment for traders targeting short-term reversals.
Gold recently tested and rejected a key level, which is pointing us to trading opportunities.
During the breakout of hostilities in the Middle East, gold prices rose back toward the record high around $5,500 per ounce seen earlier this year (box).
Gold sharply rejected that level back in January, so it has become a key place of resistance.
The Relative Strength Index (RSI) also hinted that upside momentum was weakening. Although not a negative divergence in the strictest sense, the RSI was much lower (dashed line) on the retest near $5,500.
That means $5,500 remains the key hurdle for gold prices on the upside.
When it comes to support levels, on the other hand, keep a close eye on the 50-day moving average (MA – blue line).
Gold has held above the 50-day MA since last August. It has rallied following a couple of tests of the 50-day area since then. As the 50-day MA rises toward the $5,000 level, that could become a key support zone in the weeks ahead.
That provides us with important price resistance and support levels to watch for reversals over the near term.
Of course, you should also look for the RSI to confirm any potential reversals, including momentum divergences with overbought and oversold levels, before entering into a trade. But gold seems poised to hand nimble traders handy profits.
Amid the burst of volatility rarely seen in the precious metal, it’s time for traders to take advantage.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
