Gold forecast: XAU/USD caught between conflicting forces

Gold has started the new week on the back foot after ending a three-week losing streak with gains over the final two sessions of last week. The rebound came as the dollar’s rally stalled and oil prices retreated, while a broader improvement in risk appetite lifted major equity indices and extended Bitcoin’s recovery to $85,000. For now, consolidation is the name of the game, but if the US dollar, bond yields or oil prices start moving higher again then this will negatively impact the price of gold. As before, we maintain a cautious gold forecast as there remains quite a few headwinds: dollar strength, hawkish Fed, and elevated yields.

 

What are investors watching this week?

 

Markets appear to be taking some comfort from signs that the disruption to Middle Eastern crude exports can be contained, alongside tentative hopes of a de-escalation in the US-Iran conflict. But the situation remains fluid, and there is still plenty that could go wrong. President Trump’s renewed threat to “blow up” Iran, coupled with his early departure from Camp David, suggest otherwise.

 

For now, gold looks caught between these competing forces. The relative calm in markets and tentative return of risk appetite are providing some speculative support, though this is countered by reduced haven demand. But the risk of renewed hostilities is preventing a more significant move in either direction. The result is a market that lacks a clear catalyst. This means that level-to-level trading will be the theme at the start of the week until something fundamentally changes.

 

Will the US dollar find renewed support?

 

The roughly 10% retreat in oil prices from their recent highs has reduced one of the dollar’s more important sources of support, particularly against higher-beta currencies such as the Australian dollar. The yen and sterling, meanwhile, remain under pressure following last week’s hawkish Fed rate decision and more dovish-leaning outcomes from the BoJ and BoE.

 

The key question now is whether the dollar can regain momentum from here. The economic calendar offers relatively little this week to materially reshape expectations for interest rates, leaving oil and the Middle East as the more important drivers.

 

If oil prices find a fresh bid, the dollar and US Treasury yields could regain ground more broadly. That would, in turn, increase the opportunity cost of holding a zero-yielding asset such as gold and potentially cap its recovery.

 

Conversely, if the relative calm persists, oil prices extend their retreat and bond yields ease further, gold could have room to recover more of the ground lost during its recent correction.
 

Technical gold forecast and levels to watch

 

From a technical analysis point of view, the breakout from the falling wedge is encouraging, and the pattern bears a resemblance to the price action that preceded the August breakout. On the face of it, that is a bullish signal. But the higher-timeframe picture still warrants some caution. Lower highs and lower lows since the January peak means the selling could resume at any moment after a short-term counter trend move.

 

 

Gold has effectively been in consolidation in the last few months. The sequence of lower highs and lower lows remains intact, meaning there is not yet enough evidence to conclude that the broader trend has turned bullish again. The bigger risk, therefore, is that this latest move proves to be another false breakout — much like the price action seen in the first few days of September. If so, the subsequent long liquidation could be considerably more severe than anything we have seen so far.

 

For now, $4,400 is the key level to watch on the upside. I would want to see a convincing daily close above it before becoming more confident that the bullish move has legs. Above there, resistance comes in around $4,500, followed by $4,565.

 

The downside picture is more straightforward. A reversal from current levels followed by a break below the $4,235 support area would undermine the bullish setup and open the door to a move towards $4,100 initially, with $4,000 the next major downside target.