The gold market may still have upward potential in the short term, but one market analyst suggests that gold is gradually losing buyers, indicating that the downside risk is increasing.

As the co-founder of the brokerage firm DeCarley Trading, Carley Garner has always been bullish on gold. However, she adds that with gold prices rising above $2600 per ounce, it is now time to consider the other side of the trade.

She said: "I see that gold has encountered some important resistance levels, and at such price levels it is difficult to prove that being bullish is reasonable."

At the time of the statement, the price of gold is stable above $2650 per ounce.

This year, the price of gold has experienced an unprecedented increase, hitting historical highs in the past few weeks as the market prepares for a new round of easing by the Federal Reserve.

Garner points out that despite lower interest rates, economic uncertainty, and geopolitical turmoil providing solid support for precious metals, she questions how much of these key factors have already been priced into the current market.

She said: "No matter how bullish the fundamentals are, if everyone is already holding positions, the market will eventually run out of buyers. I believe the market needs a reset as it is looking for a new narrative."

Aside from overbought momentum in gold, Garner also said another risk is that any unexpected economic weakness could lead to a stock market decline. She pointed out that the S&P 500 index is trading at historically high levels of danger, and it wouldn't take much effort to plunge the market into panic, creating a liquidity trap that could drag gold prices lower.

She said, "Fund managers hold one of the largest long positions in history. Large institutional participants hold a significant number of long positions. At the same time, investors' leverage is higher than they realize. They haven't realized how much risk they are taking on because they haven't experienced an adjustment yet. This will create liquidity issues in the market, potentially hurting gold prices."

Garner points out that shorting gold at the current levels is a very contrarian operation. To limit risk, she prefers to short via options spreads. She mentioned that she made a trade recommendation when gold was slightly below $2600 per ounce on September 17th.

In the put options spread, Garner sold the call options expiring in February with a strike price of $2900 and the put options expiring in February with a strike price of $2400, and used credit to buy the put options expiring in February with a strike price of $2500.

She added that if the price of gold surpasses $2900 per ounce, the risk of this trade would be unlimited. If held until expiration, the maximum profit would be around 0.01 million dollars.

However, she also mentioned that she plans to actively trade this option.

Garner said in the initial trade recommendation: "It's important to give the market enough room. If you prefer limited risk, you can buy the put options expiring in February with a strike price of $2300 for approximately $800. If gold pulls back, that might not be a bad position. A normal pullback could bring the price down to $2300 or $2150 per ounce. Another approach is to sell mini or micro futures contracts."

Garner mentioned that if gold does start to pull back, the price could easily fall back to $2300 per ounce. She also added that it wouldn't be surprising to see gold retest its initial breakthrough level, dating back to when gold prices broke $2150 per ounce in March.

Although Garner expects the gold price to fall in October, she also anticipates a significant amount of uncertainty and volatility around the U.S. presidential election in November.

She suggests that traders should overall start reducing their risk exposure before the election.