It’s been a fairly risk-off session across the markets today, with stocks, crypto and gold all coming under pressure. The main drivers have been rising oil prices and a stronger US dollar. There are lots of tech earnings and central bank meetings to come this week, making it a potentially more volatile week than normal. For now, the gold forecast is looking somewhat bearish, and we could see some further downside – especially if oil continues to push higher.
Crude oil turns volatile as UEA exits OPEC
A lot of the wider market movement is still tied to what’s happening in crude oil. Prices turned more volatile after reports that the United Arab Emirates plans to leave OPEC. That’s a development with potentially major long-term implications for the oil market.
If OPEC’s influence over global supply weakens, then over time we could see greater competition and potentially lower oil prices. But that’s more of a longer-term story.
In the near term, traders remain focused on the ongoing tensions around the Strait of Hormuz. Because of that uncertainty, the path of least resistance for crude oil still appears to be higher. Brent crude has now broken above the $112 a barrel mark, extending gains after several consecutive sessions of buying. Prices are also moving closer to the highs we saw during the peak of the Middle East crisis, which increases the pressure on both Iran and the US to strike a deal and end the standoff.
Gold forecast undermined as key levels break
Now, rising oil prices are also feeding through into other markets. We’re seeing upward pressure on both the US dollar and bond yields, and that combination is creating headwinds for precious metals.
Higher yields increase the opportunity cost of holding assets like gold and silver, because unlike bonds, they don’t pay any interest, and they also carry storage costs.
As a result, gold is now lower for a second consecutive week. Technically, the metal has broken several important levels on the downside, including the $4,650 area, which had previously acted as support.
If the selling pressure continues, then the next downside targets on XAUUSD could come in around $4,500, followed by the $4,400 region. Longer-term support still sits around the $4,000 level.
On the upside, resistance is now seen between $4,645 and $4,660, which marks the area of the previous lows.
What else will investors watch this week?
Looking ahead, investors will also be preparing for a busy week of major events. We’ve got earnings from several megacap technology companies, interest rate decisions from both the Federal Reserve and the European Central Bank, and a number of key economic data releases.
For now, though, as long as crude oil prices continue to push higher, the dollar is likely to remain supported, and that could continue to weigh on gold forecast in the sessions ahead.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
