Recalling our earlier forecast Gold Takes A Bullish Turn – Bullish Butterfly In Play, the precious metal has traded exactly in line with our forecast. The bullish butterfly pattern was suggesting a sharp bullish movement in the market and traders reacted on it.

Most of the bullish trend was triggered due to weakness in the dollar and boosted demand for the safe-haven metal on concerns surrounding Italy’s plans to tackle the budgetary deficit. The risk appetite was fueled after the European Union (EU) officials expressed anxieties about Italy’s budget plan, which would extend the deficit significantly. The deficit gap revived fears of the Eurozone debt crisis. In response to this, investors tried to take shelter under safe-haven gold.

Gold – 3 Hour Chart

For the moment, gold is trading in the overbought zone. The RSI value is holding above 80, signifying the bulls may get exhausted and sellers may jump in to catch the retracement.

Considering this, gold can drop to 38.2% Fibo retracement level of $1,200 and 61.8% level of $1,196 today. Good luck!