Gold weekly outlook: What now after black Friday?

Both gold and silver are likely to face continued volatility in the early parts of the week ahead following what was a black Friday for both metals. Some traders will undoubtedly be looking to buy the dip, while others might be looking to exit on any short-term rallies. This should keep gold quite volatile to start the week. There is also the risk of Iran being bombarded by the US, which adds another layer of complexity to the equation. So, the potential for a price gap is there at the Asian open on Monday. Later in the week, the focus will turn to US data. With gold falling sharply and holding onto its losses, the near-term gold outlook is now bearish.

 

Gold and silver plunged on Friday – everything you need to know

 

Precious metals suffered one of their biggest percentage falls in years on Friday, following a scorching rally that had lifted prices to all-time highs just a day earlier. By just after the London close, gold was still some 8-9% lower on the day, holding below the key $5,000 level, though off its worst levels. This was gold largest intraday drop since the global financial crisis of 2008. For silver, it was even worse: a slump of more than 25% at one point, making it a record intraday slump.

 

Precious metals were extremely volatile in recent days, with silver in particular swinging wildly on an intraday basis. This in and of itself was a telltale sign of things to come. Some investors took heed and rushed for the exits at the first signs of trouble.

 

Concerns about currency debasement had been one of the biggest reasons why investors had piled into the metals, given question marks over the Fed’s independence, with Trump constantly demanding rate cuts and trying to appoint a dove. In the end, he opted for a more hawkish-leaning person to replace Jerome Powell, in Kevin Warsh. That trigged a big dollar recovery as investors pushed their rate cut bets back and bought a severely oversold US dollar.

 

Meanwhile, trade wars and geopolitical tensions had also driven investors towards the safe haven appeal of metals. But in the end, priced simply rose too high, too fast, triggering a massive liquidation as prices started to retreat, and broke a few support levels.

 

Key data and central bank meetings coming up

 

Investors’ focus will slowly shift towards the US economy with plenty macro data on tap in the week ahead. We will hear from the likes of the European Central Bank, Bank of England and Reserve Bank of Australia. The US dollar hadn’t had a good start to the year until Friday when it surged across the board. Until Friday traders had preferred the appeal of precious metals and foreign currencies over the greenback. But has the trend already turned with Trump opting for Warsh? And should we see a potentially strong set of jobs reports this coming week, then surely will the dollar find more than just near-term support. NFP is the highlight on Friday but don’t forget other labour market indicators released throughout the week, not least JOLTS Job openings on Tuesday. However, if next week’s employment data largely disappoint, then calls for further rate cuts in Q2 should grow louder – and that might trigger another golden wave for the precious metal.

 

Gold technical outlook: Bearish in the short-term

 

Gold’s big drop and the fact it has broken the key psychological level of $5,000, puts it on a bearish path in the short-term outlook. Prices will need a lot of time now to digest these moves before we potentially see signs of a bottom emerge again. For now, the path of least resistance will be to the downside. The onus is on the bulls to show they are still in control despite Friday’s big setback. Usually, after such big drops, you tend to see at least some downside follow through and that’s precisely what I would be expecting in the week ahead.

 

 

For now, it is difficult to say when or at what price point might we see a bullish reversal on the gold price chart. Let’s wait for more price action in the week ahead.

 

Still, levels like $4600, marking a previous gap, and $4500, the next psychological level on the downside, should be watched, should we get there. First up, is Friday’s low at $4679, where trapped traders’ stop might be resting just below it – making it the first downside target for the bears first thing Monday. On the upside, $4,941, $5,000 and $5,100 are the levels where we might see some action around. These levels were all prior support levels.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R