Gold forecast: XAU/USD retreats along with dollar debasement trade

Gold was down nearly 1.5% on the session, with US indices and Bitcoin also struggling. Is this a mere pause before more gains are seen, or have we already seen the end of the recent bullish advance?  This week’s price action could be decisive for the near-term gold forecast.

 

Analysis: Has gold hit a ceiling already?

 

One of the reasons we saw the big rally in gold and bitcoin in recent weeks was concerns about the US debt situation. That gave rise to the so-called US-dollar debasement trade, where precious metals rallied and currencies of countries with better fiscal discipline outperformed the greenback.

 

In the last couple of days, however, we have seen a bit of give-back in that trade, with investors welcoming, although not-so-warmly, the US Treasury’s decision to up its long-dated bond buying to effectively lower rates and suggestions that there is more in their tool kit to hammer down yields. Thus, the question now is will we see some unwinding of that dollar debasement trade, given that yields have moved slightly lower, even if it has been a struggle?

 

The other factor to take into account is oil prices, which, despite recovering today, have come down from their highs from last week.

 

These developments call for a bit of caution chasing the gold rush. Indeed, there are those who believe gold has already peaked earlier this year and will be looking to short this move on the first sign of bullish exhaustion.  Have we seen that already today?

 

All eyes on Kevin Warsh at Jackson Hole

 

The so-called 'debasement' trade will be put to a further test later this week. Kevin Warsh's speech on Friday could prove decisive for the dollar, and by extension, gold forecast. Ultimately, however, unless yields start to head more decisively lower, the pressure will likely remain on the US dollar, with currencies of countries with better fiscal discipline, like the Norwegian Krone and Swiss franc, likely to remain supported. For the same reason, investors may prefer to buy any dips they can get their hands on gold.

 

Technical gold forecast and levels to watch

 

The price of gold has hit an important resistance area between $4,655 to around $4,700 area. Back in May, this is where the last selling phase began. Now that gold has arrived back in this zone, we have already seen a bit of selling pressure. The question now is whether there will be more selling to come, or whether this is just a pause before gold breaks higher again.

 

 

The recent structure is certainly bullish on XAUUSD, with price having broken above the 50- and then the 200-day moving averages, as well as lots of short-term resistance levels. Some of those broken levels could turn into support, or perhaps not. It is important to observe what gold does when and if it comes down to retest some of these levels. Failure to bounce could be a sign of trouble for the bulls.

 

Among these levels, the first important zone to watch is around the $4,515 area. Here, a prior resistance meets the 200-day average. Slightly below it is the short-term bullish trend line, followed by the next band of support between $4,400 to $4,436.

 

If these levels fail to offer much in the way of support, then watch out below. But the burden of proof lies with the sellers, having lost control of price action ever since they failed to push gold decisively below the key $4,000 long-term support level.