On Wednesday (September 25th), spot gold once surged past $2,670 per ounce during the session, setting a new historical high. However, gold prices then experienced a significant drop, closing near $2,656 per ounce.

Analysts pointed out that the technical indicators for gold have shown signs of being overbought, which puts pressure on gold prices to correct. The strengthening of the US dollar and Treasury yields also suppressed gold. Moreover, news that the US is working on a temporary ceasefire plan between Israel and Hezbollah has somewhat cooled the risk-aversion sentiment, thereby hitting gold prices.

Spot gold touched a high of $2,670.53 per ounce during Wednesday's session, but then performed a "high platform dive," ultimately closing at $2,656.55 per ounce.

Senior analyst at FXStreet, Dhwani Mehta, noted on Wednesday that on the daily chart, gold prices have entered an extremely overbought state, facing the risk of adjustment.

FXStreet analyst Christian Borjon Valencia stated that due to the rise in US Treasury yields and the strengthening of the US dollar, gold prices fell after reaching a historical high of $2,670 per ounce but still held above $2,650 per ounce. The momentum for gold remains bullish.

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The yield on the US 10-year Treasury note rose by 4.5 basis points to 3.775%. Meanwhile, the US Dollar Index (DXY), which tracks the value of the dollar against six other currencies, rebounded from a 14-month low, rising by 0.54% to 100.88.

Expectations of another substantial rate cut by the Federal Reserve continue to support gold. Traders believe there is a 60% chance of a 50 basis point rate cut by the Fed in November.

Since gold does not generate interest, a decrease in interest rates enhances the investment appeal of gold.

David Meger, Director of Metals Trading at High Ridge Futures, said: "We are still riding the wave of central bank easing policies, with more easing potentially on the way, so the US dollar is expected to weaken further."

Traders are awaiting Federal Reserve Chairman Powell's speech and US inflation data to further explore the direction of interest rate policy.Blue Line Futures Chief Market Strategist Phillip Streible stated that if the labor force continues to be weak and Federal Reserve Chairman Powell reaffirms a 50 basis point rate cut, then we might see gold levels at $2,700 per ounce in the next day or two.

So far this year, gold prices have surged by more than 29%, attributed to central bank easing policies and geopolitical tensions.

How to trade gold?

FXStreet analyst Christian Borjon Valencia pointed out that gold prices are poised to continue their upward trend. However, due to the lack of a catalyst, the price trend turned sideways on Wednesday. Once a catalyst is obtained, this could push gold prices to break through the current record high and head towards $2,700 per ounce.

Valencia said that from a momentum perspective, the Relative Strength Index (RSI) indicates that gold is overbought, which could lead to a decline in gold prices before resuming the rebound.

Valencia stated that if gold continues its rebound and breaks through the peak of $2,670 per ounce so far this year, it is expected to challenge $2,675 per ounce, followed by $2,700 per ounce.

As gold continues to rise, the next target for gold prices is $2,750 per ounce, followed by $2,800 per ounce.

On the other hand, Valencia added that if gold prices fall below $2,650 per ounce, they are expected to test the high of $2,600 per ounce on September 18th. The next key support level to be tested will be the low of $2,546 per ounce on September 18th, followed by the 50-day simple moving average (SMA) at $2,488 per ounce.