(MENAFN- Daily Forex) Gold remains volatile on Monday after filling an early gap and surging higher. Analysts warn momentum may be overextended, with $4,200 and $4,000 as key support zones and pullbacks offering safer entry points amid potential sharp corrections.

• The gold market has been pretty noisy during the trading session here on Monday, after initially gapping higher only to turn around and fill that gap and then take off to the upside.
• This is more exaggerated upside behavior, and one has to wonder how long this momentum can continue.
• All things being equal, this is a market that I think you are looking for value in.
• But the question is, where is the value after these massive moves to the upside? I think you have to look at this as a market where dips have to be looked at as a potential buying opportunity, especially with the $4,200 level offering support over the last couple of days.

Can We Fall to $4000?

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A move below could open up a drop to the $4,000 level, which is, of course, a large, round, psychologically significant figure and an area where I would anticipate a lot of options being traded. All things being equal, this is a market that you can't get short of, but it's tough to really jump in here and start buying at these extreme highs.

There is going to come a point where we get a significant pullback, and when we do, it could be rather brutal. Gold right now is a pure momentum play, and unfortunately, momentum plays tend to end very poorly. That's not to say that I think gold markets fall apart anytime soon, but it would not be out of the realm of possibility that we would drop 5% in one day.

EURUSD Chart by TradingView

Five percent could send this market down pretty significantly - a couple of hundred dollars pretty quickly - wiping out traders who are levered. Furthermore, there's also the possibility that gold may have to be liquidated to cover losses in other markets. So, when we get some type of panic move, the initial move might actually be lower for gold as traders try to cover big problems elsewhere. But as things stand right now, if you are going to buy gold, clearly short-term pullbacks are the way to get involved.

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