Gold forecast: XAU/USD holding steady above $5K hurdle

Gold has so far had a positive day and a half, following the sizeable recovery we saw on Friday, when risk assets rallied across the board, with crypto, equity indices and metals all pushing higher, while the dollar eased as investors moved away from defensive positioning. The bounce was certainly eye-catching, and we have already seen some upside follow-through in global indices and major FX pairs. For gold and silver, the big question now is whether these markets can also kick on from here, or do we go lower once again? Early on Tuesday, trade was a bit mixed. The dollar continued to soften, but US index futures gave back some of their earlier gains. Gold and silver were little-changed by recent volatile standards, with the latter being down ‘only’ 1% and the former 0.1% worse off, and both hovering around some key technical levels. On Monday, precious metal rose for the second consecutive session with reports that China has been urging banks to curb exposure to US Treasurys providing an additional boost, as this, in theory, leaves more room for gold in reserve allocations. On top of that, the US dollar and global bond yields fell back on bets of more rate cuts. Traders will be looking ahead to important US data later this week, with jobs numbers on Wednesday and CPI on Friday likely to set the tone for the gold forecast, and the next leg in markets. Today’s focus will be on US retail sales, expected to print +0.4% m/m vs. +0.6% in the previous month.

 

Gold forecast: What to watch this week

 

Last week, the dollar had been mostly supported by a risk-off backdrop that had weighed on stocks, crypto and metals for much of the period. That changed on Friday, when dip buyers stepped in and the dollar finally reacted to some softer labour market data released earlier in that week. The re-pricing lower of US interest rate expectations took some of the shine off the defensive dollar rally, which helped metals stabilise after that wobble.

 

Thus, the greenback looks a bit vulnerable heading into Wednesday’s US jobs data, which would generally be a supportive backdrop for the gold forecast. That said, the heightened volatility we’ve seen recently means nothing should be taken for granted. It’s possible we’ve already seen a near-term peak in precious metals, with some trapped traders who chased the rally near the highs now potentially looking to exit around breakeven, which could add selling pressure.

 

All told, the current gold price action feels more like a trading market than a clean trending one. Personally, I’d rather take things level by level. Still, that positive close on Friday, and the follow-up buying on Monday, does tilt the near-term directional bias slightly to the upside for gold.

 

Technical gold forecast and key levels to watch

 

Price action on gold has been quite calm in recent trade, as the metal decides whether or not to stay above the key $5,000 level. After gold’s sharp breakdown a couple of weeks ago, I was initially looking for another leg lower around the early parts of last week. At the time, price was moving within a rising wedge on the intraday charts, which eventually did resolve to the downside. We saw a fairly aggressive sell-off, although gold bottomed at $4,655 and therefore didn’t create a lower low beneath the recent low of $4,402. I was expecting another dip to the key $4,500 level. But the fact that gold made a higher low instead is impressive, as too is the recovery that followed. Gold has since broken back above a couple of key levels, shifting the short-term technical bias back towards bullish territory in the very short-term outlook.

 

 

At the time of writing, gold was trading above the $5K mark. The next area to watch sits between roughly $5,070 and $5,100, which previously acted as support before the market broke lower a week and a bit ago. This zone has already capped price once in mid-last week, triggering a sell-off that ultimately failed to make a new low (as mentioned earlier).

 

So here we are again. If gold can reclaim and hold above this region, that would be a clear bullish signal for the gold forecast, opening the door for a potential move towards $5,290 or even $5,390 – both previous breakdown levels.

 

On the flip side, those reclaimed support levels now need to hold. A break back below the $4,970 to 5,000 region, could bring sellers back into play. In that scenario, we could see some selling towards $4,895/$4,900 area initially. Additional support sits near $4,800, above which a trend line also comes into view. But a decisive move below that would likely make things uncomfortable again, with scope for further technical selling towards $4,600 or even $4,500.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R