Gold's traditional role as a safe-haven asset is being tested amid an AI-led stock selloff, as the metal struggles to capitalize on the haven rally. Despite a weakening dollar, which typically supports gold by making it cheaper for foreign investors, extreme market positioning is creating a precarious situation. Hedge funds have increased their net long positions to a three-month high, but the long-short ratio has reached a stretched 43:1, leaving gold vulnerable to sharp corrections if sentiment shifts, according to Ole Hansen at Saxo Bank. Hansen warns that the imbalance could lead to a deeper correction, as there are few speculative shorts to absorb potential selling pressure.
The upcoming Federal Reserve meeting and the release of US PCE data are key events that could influence market sentiment. Any hawkish signals from Fed Chair Jerome Powell might disrupt the bond rally and strengthen the dollar, which would likely weigh on gold prices. As of 08:32 on January 27, GLD, an ETF that tracks the price of gold, is trading at $254.65, slightly down from its last close of $255.65, and remains below its 52-week high of $257.71.