Investors have been flocking to gold and other hard assets in 2025 as uncertainty about America’s trade policies, the strength of the U.S. economy, and the future of the U.S. dollar continue to rattle markets.

As stocks wobble under the weight of rising interest rates, geopolitical strife, and an ongoing bear market, gold has become the go-to safe harbor. But as of this week, the metal’s record-breaking rally is about to face its first real test – a healthy retracement that will shake out some of the froth before setting the stage for the next leg higher.

This retracement won’t be the end of gold’s bull market. Far from it.

What we’re seeing now is a necessary pause in an overheated move, sparked by two key political shifts that caught traders off guard: the President’s softening stance on the U.S.-China trade war and his latest endorsement of Jerome Powell as Chairman of the Federal Reserve.

These developments triggered a sharp bounce in equities and a cooling-off period for gold.

Let’s break down how we got here, why this correction is perfectly normal, and where smart investors should look to add gold back into their portfolios.

What Changed: The White House Makes a Move
Gold’s rally came to an abrupt halt on Wednesday after the President sent two major signals to the market.

First, he unexpectedly softened his tone on trade negotiations with China. In a press conference, he noted that the current 145% tariff on Chinese imports is “very high” and hinted it “won’t be anywhere near that high” going forward.

That’s a clear indication that tariff pressures could ease, at least temporarily, pulling one of the key pillars out from under gold’s bullish momentum.

At the same time, the President surprised markets by signaling he has no immediate plans to remove Federal Reserve Chairman Jerome Powell from his post.

After weeks of speculation that Powell’s job was on the chopping block, this reversal in tone calmed investors and sparked a broad-based rally in equities.

The combined effect of these announcements? A 5% surge in stock prices, renewed confidence in risk assets, and – predictably – a pullback in gold. After all, if trade tensions cool and the Fed remains steady, the fear premium that’s been driving gold higher begins to fade.

But don’t mistake this short-term sentiment shift for a lasting change in the macroeconomic landscape.

Why Gold Was Trading at Its Highs
The retracement we’re seeing now is coming off one of the most aggressive rallies gold has seen in years. From the beginning of March, gold prices surged 18%, with the GLD ETF (the SPDR Gold Shares fund) following closely behind.

In early March, GLD shares showed slight weakness when the Trump Administration made conciliatory remarks about trade. But those headlines proved short-lived. By April, as tariff threats escalated between the U.S. and China and the Federal Reserve warned that trade disruptions could stall interest rate cuts, gold took off like a rocket.

Investors, sensing both economic risk and central bank hesitation, piled into the safe-haven metal, sending prices on a near-vertical ascent. This wasn’t just buying – it was fear-driven momentum, the kind of move that often triggers technical red flags.

And that’s exactly what happened.

Gold’s Technical Warnings Flash Red
On Tuesday, GLD hit a technical milestone that demands attention. The ETF’s share price traded at a 26% premium over its 200-day moving average – a level of overextension not seen since August 6, 2020.

Why does this matter? Because historically, when GLD stretches that far above its long-term trendline, a regression to the mean is all but guaranteed. In the three previous instances where GLD reached a 25% or higher premium over its 200-day moving average, the subsequent corrections averaged 21%.

That kind of pullback isn’t a failure of the bull market – it’s a reset. A breather. The market is simply doing what it always does: rebalancing risk, shaking out weak hands, and preparing for the next move.

This correction will be driven by profit-taking, slowing momentum, and a temporary easing of the fear factors that drove gold’s parabolic rise. And that’s exactly what long-term bulls should want to see.

Is Gold Still a Buy?
Absolutely. In fact, the coming retracement could be the best buying opportunity we’ve seen all year.

Don’t fall for the headlines that will inevitably scream that gold’s bull market is over. That would be like declaring the stock market’s bear market is finished – both are premature calls. This dip in gold is driven by a short-term shift in sentiment, not a fundamental change in the macro backdrop.

Let’s not forget, The White House has shifted its stance on Powell three times in the past two weeks alone. And the trade war? It’s far from resolved. The Administration’s softening tone could harden again at any moment, especially if the Fed doesn’t lower rates at its next meeting in May.

This is a high-volatility political environment, and markets are reacting accordingly. The overnight shift in tone from the White House is about calming markets, not ending the underlying risks that pushed gold higher in the first place.

In the meantime, traders are capitalizing on the bounce in stocks, but the intermediate- to long-term trends remain intact: bearish for equities, bullish for gold.

This is Where Investors Should Buy Gold?
Given the technical setup, it’s reasonable to expect GLD shares to pull back up to 20%, aligning with the historical 21% average correction after similar overextensions. That would put GLD back toward its key trendlines and stronger support levels.

For short-term traders, the 20-day moving average near $290 has been an effective pivot. But with stocks rallying and sentiment shifting, that level could easily give way.

The real buying opportunity lies at the 50-day moving average, which currently sits around $280. Not only is this a key technical level, but it also marks the zone where GLD consolidated back in February—making it a natural support area where new buyers can step in.

This isn’t just about catching a falling knife. It’s about waiting for the market to reset, allowing fresh capital to enter at reasonable prices, and setting up for the next move higher.

Make no mistake: the long-term bull case for gold hasn’t changed.

Inflation risks, geopolitical tensions, and central bank uncertainty remain firmly in place. This correction is just the market’s way of reminding everyone that no rally goes straight up.

And for disciplined investors, that’s exactly the kind of environment that offers the best opportunities.

— Chris Johnson

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Source: Money Morning