Gold weekly outlook: Will Iran proposal lift the deadlock?

This weekly gold outlook was written on Friday afternoon, before the markets closed. At the time, gold was coming slightly off its earlier highs, but remained higher as oil prices fell on reports Iran had set a new proposal to restart talks. What will the weekend and week ahead bring to the markets, and how will this impact our gold outlook? Let’s dive in.

 

Will US-Iran talks re-start?

 

Apparently, Iran had sent a new proposal to the US via Pakistan, which helped to keep sentiment supported on Friday and pushed oil prices lower. Whether this will lead to sustained weakness in oil remains to be seen. In my view, as long as the Strait of Hormuz situation remains unresolved, these types of headlines are likely to provide only temporary pressure on prices rather than drive a prolonged move lower.

 

If oil gaps at the Asian open on Monday, it could trigger moves in gold and across other financial markets, given how interconnected they’ve become.

 

Now, before discussing upcoming data and turning to the technical gold outlook, the slight weakness in oil prices weighed on the US dollar at the end of the week, which in turn supported gold.

 

Technical gold outlook: key levels to watch

 

Gold prices were testing a key area of resistance at the time of writing, namely around the $4,660 area. This was prior support that broke during Tuesday’s sell-off. Gold was probing that level from below, and it was offering some resistance.

 

For as long as this level holds as resistance, the near-term path of least resistance will remain to the downside.

 

 

Indeed, looking at the bigger picture, the technical gold outlook has turned slightly bearish, given the recent sequence of lower highs. That said, we’re not seeing aggressive selling. So, for now, range-bound, level-to-level trading still makes the most sense on XAUUSD - especially while the situation involving Iran remains unresolved.

 

Key support comes in around $4,500 and the $4,400 if that breaks.

 

Heading into the close on Friday, it was unlikely that traders would take on excessive risk given the ongoing uncertainty between the US and Iran—particularly around the Strait of Hormuz.

 

Watch: Crude oil, GOLD and USD/JPY analysis

 

 

Key US data set to impact gold outlook

 

There a few important data releases in the week that could impact the USD and in turn the gold outlook.

 

Among the data highlights will be the ISM Services PMI on Tuesday. This is one of the most important gauges of US economic activity, covering the largest part of the economy: services. It’s widely tracked because it can shift expectations for growth and Fed policy, and as it is forward-looking. Through its employment component it offers some pre-NFP leading indication, too.

 

US Nonfarm Payrolls, this will be released on Friday, May 8.  The report is the headline event of the week and typically the biggest market mover. The current narrative of low-hire, low-fire has kept the US stock markets ticking along nicely, with investors not yet too concerned about the inflationary implications of the energy shock on the world economy. Following last month’s big surprise of 178K, are we going to see another surprise? A strong print will be bearish for the gold outlook, while a weak number should provide it support.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R