Gold prices were edging higher at the time of writing late in the day in Europe. We have seen some positive US data, but this is too little, too late to change the Fed’s decision to cut rates next week. Indeed, the bullish narrative in the gold forecast is still very much driven by expectations of imminent rate cuts by the Fed and Trump lining up a dovish Fed chair is also helping the metal. There is also a bit of extra lift coming from ongoing geopolitical jitters concerning Ukraine-Russia. Add in the persistent talk of de-dollarisation and the steady buying from central banks, especially from China, and you’ve got a market that feels reasonably well-supported. Still, beyond these familiar pillars, there isn’t a great deal else propping things up, which does make you question how durable the rally really is. I for one am expecting a correction to happen soon, but what could be the trigger?
What could knock gold off course?
One obvious uncertainty is whether the PBOC keeps hoovering up gold at these levels. Any clear softening in China’s appetite could force leveraged longs to rethink their positioning rather sharply. At the same time, there are tentative signs that geopolitical tensions may be easing. The slow movement in Ukraine peace discussions, the recent ceasefire in Gaza, and a renewed trade truce between China and the US should, in theory, dim some of gold’s haven appeal. Yet, rather oddly, prices have barely blinked. A softer US dollar, helped along by a run of lacklustre US data, have kept a solid floor under the market. But one has to wonder whether this calm exterior is masking a more volatile chapter to come.
Japan is also worth keeping an eye on. Its bond market is sending some potentially alarming signals as yields continue to push higher on expectations of a rate hike from the BoJ. So far, this hasn’t caused any major turbulence in other markets, but the bond market turbulence could easily spill over into global stocks markets, potentially triggering a reverse carry trade that puts pressure on leveraged positions — gold and silver included.
Technical gold forecast: Key levels to watch
From a technical standpoint, gold is still in a bullish trend, but it is lacking momentum and remains vulnerable to short term volatility, should a couple of support levels start to give way.
Among the support levels to watch, the area between $4165-4170 is key on the gold chart. This area was previously short term resistance, and so far, price is holding above it. But will that change soon?
Should support at that area break then $4100 could be the downside target, which is the next round handle and point or origin of most recent upswing. It would be a bearish development for the gold forecast should we go below that level on a closing basis. In that case, $4000 could be re-tested again at the very least.
Resistance is meanwhile seen around the $4210/20 area. Above that, $4245-$4270 remains the key resistance range as before. This area was where gold last sold off from and after a couple of retests from below, the metal continues to trade below it. It needs to reclaim this area if we are to see a push to new highs.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
