BUZZ-COMMENT-An overbought gold price could present opportunities

Feb 19 (Reuters) - Despite geopolitical, fiscal, macroeconomic and international trade uncertainty continuing to drive investment flows towards the safety of gold, there might be scope to buy the yellow metal at better levels.

Fundamentally the argument for holding gold is a strong one and the draw of $3000/oz is significant and the level provides a viable target. However, from a technical perspective the price of gold is stretched. The risk of a reversal, albeit likely a small one, is increasing.

A sharp pullback from a $2942 record high last week gave a warning, and an acceleration higher this week adds to the risk of a direction change. A quickening pace within an established trend can precede a reversal.

Fourteen-week positive momentum is at levels that coincide with deep pullbacks against the underlying bull trend back in October and May 2024.

The weekly relative strength indicator (RSI) has been above the 70.00 line (overbought) since late January and has a current reading of 76.00. However, the weekly RSI reached levels of 82.00 before the market turned sharply lower back in October 2024. This suggests that gold could go higher still before retreating.

A sharp retracement from the recent high is the risk and such a move could drag on the South African rand, which is currently recovering versus the dollar.

Fibonacci retracement levels taken off the $2536.70-$2942.70 November-February rally provide pullback targets and potential bull trend entry levels at $2847, $2788, and $2740.

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