Gold forecast: Breakdown below key support shifts the near-term outlook

Gold was bouncing off earlier lows at the time of writing, but the downside risks remain. The metal has come under strong pressure in recent weeks, extending a corrective phase that has gradually gathered momentum since the peak at the end of January. The precious metal suffered another sharp setback last week, with prices falling around 5% before stabilising somewhat at the start of this week as tensions in the Middle East flared up and eased just as quickly. Still, the broader backdrop for gold forecast has become increasingly challenging. The recent upsurge in global bond yields, a resilient US economy and a stronger dollar have all combined to reduce the appeal of non-yielding assets. Investors who had previously sought refuge in gold amid global uncertainty are now facing a very different environment, one where the opportunity cost of holding bullion is steadily increasing.

 

Long-term gold forecast positive but short-term turning bearish

 

From a longer-term perspective, the structural case for gold remains intact. Persistent concerns over fiscal deficits, reserve diversification by central banks and inflation risks should continue to provide support on major pullbacks. However, the balance of risks over the coming weeks appears skewed towards further weakness before a more durable recovery can emerge.

 

Some of the short-term weakness in gold is due to reassessment of the US interest rate outlook. Recent economic releases have generally surprised to the upside, reinforcing the view that the Federal Reserve may have to tighten policy than loosen it later this year.

 

Friday’s release of stronger-than-expected labour market data underscored that view, helping to lift Treasury yields and underpin the dollar. That combination has been unfavourable for gold, and recent price action has reflected exactly that dynamic.

 

US CPI in focus this week

 

Attention now turns to upcoming US inflation data, which could prove decisive for short-term market direction. Another firm inflation reading would likely strengthen expectations that rates remain elevated for longer, potentially providing further support for the dollar while weighing on precious metals.

 

At the same time, developments in energy markets remain important. Although geopolitical tensions have eased somewhat, continued disruption to global supply chains or energy flows through the strait of Hormuz will keep inflation concerns alive.

 

The 200-day moving average finally gives way

 

Perhaps the most significant technical development has been gold’s decisive break below its 200-day moving average.

 

The last time gold closed beneath this closely watched indicator was in September 2023. That breakdown led to an approximate 5% decline over the following ten to eleven trading days before buyers returned and pushed prices back above the average by mid-October.

 

Since then, gold has tested the 200-day moving average on three separate occasions. The first occurred in November 2023, while the second came in March this year. Both tests triggered substantial rallies, reinforcing the importance of this level as a long-term support zone.

 

The third test arrived only a few weeks ago. Unlike the previous occasions, the rebound was relatively modest and lacked conviction. That weaker response correctly suggested that the bullish momentum was beginning to fade. We have now had the breakdown below the average.

 

This marks a potentially important change in market behaviour. Technical traders often view such moves as confirmation that a longer-term trend is weakening, which may encourage fresh selling pressure on short-term rallies.

 

While one indicator alone does not determine the future direction of a market, the failure to defend such a significant support level cannot be ignored.

 

Can gold avoid a move towards $4,000?

 

As indicated by the breakdown of the 200-day, the technical picture has deteriorated noticeably following last week’s sell-off. Gold’s inability to sustain gains above the $4,500 region ultimately left the market vulnerable to a deeper correction, with the break beneath the 200-day moving average accelerating downside momentum.

 

 

The next major area of support on XAUUSD is a longer-term ascending trend line near $4,230. Below that, support levels become increasingly sparse until the March lows around $4,100, creating scope for a more pronounced decline if sellers maintain control.

 

Given the current market structure, a move towards the psychologically important $4,000 level can no longer be ruled out.

 

On the upside, initial resistance sits around $4,366, followed by $4,400, $4,455 and then the former key barrier at $4,500. A recovery above these levels would help stabilise sentiment, although a more meaningful improvement in the outlook would require a decisive move beyond the broader resistance zone around $4,580.

 

For now, the combination of a stronger dollar, elevated yields and a confirmed break below long-term technical support suggests rallies may continue to attract sellers. While the longer-term bull market may not be over, the near-term gold forecast remains bearish.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R