Gold has its worst day since last November 23, dropping more than 2.7% from the open. Risk-off sentiment at newly found all-time highs and geopolitical risks in the Middle East faded.

XAU/USD recently reached an all-time high mostly due to central bank buying, increased industrial demand and an easing Fed outlook. However, the latest rally to its all-time high came on the back of rising tensions in the Middle East.

The attack from Iran on Israel gave the market some buoyancy as investors were fearing the worst from a possible escalation in the conflict. Now it seems those risks have subsided, and the market is looking to take back some profits.

Despite today’s decline gold fundamentals are still in place. Jewelry is still strong, especially in countries like India or China. While central bank buying, although hard to predict, seems to be steady.

Technical View

The day chart for XAU/USD shows how toady’s sharp drop stands out compared to previous candles. To get a longer candle than today’s you need to go back to November 23 (last candle on the chart). The longer a candle the greater the likelihood of the trend continuing.

WE already have some indications that a correction may be about to take place. Today’s candle has brought the RSI below the 70 level, which is usually consistent with signaling a correction. However, we are already close to the support level (red line) of $2,318.

So, we may get some consolidation here as the market finds its bearings. A break below that support would open up the possibility of further declines to the next support level (green line) at $2,264. While a bounce off the support line would meet resistance at the all-time high of $2,431.