Gold forecast: XAU/USD and stocks rally in tandem despite firm dollar

• Gold forecast: Metal climbs 2% amid upbeat risk sentiment
• Gold’s positive correlation with equities means bullion traders should watch stocks
• Key support is around $4,000 and $4100 resistance

 

Gold has once again mirrored the movement in equity markets, rising more than 2% late in the London session alongside a jump in global equity markets. Risk-sensitive currencies, such as the Australian and Canadian dollars, also gained against the US dollar, while the safe-haven Japanese yen weakened across the board, pushing USD/JPY above 154.00 handle. Meanwhile, the EUR/USD and GBP/USD pairs remained broadly unchanged, leaving the Dollar Index marginally firmer on the day. In other words, gold rallied despite a slightly stronger dollar and a buoyant risk environment. This might sound like a rather unusual combination, but gold and stocks have been trending positively for a while now. Anyway, risk sentiment improved as optimism grew that the US Senate was closing in on a resolution to end the government shutdown. If that materialises, a slew of delayed economic data could soon be released, potentially offering greater clarity for both the Federal Reserve and investors. For now, the gold forecast remains positive, with prices now firmly back above $4K by some distance.

 

Stock market correlation worth watching for gold investors

 

Traditionally, gold and equities have tended to move in opposite directions: when risk sentiment sours, investors typically sell stocks and seek safety in gold. Yet in recent years, that inverse correlation has faded, with gold often tracking the S&P 500 higher or lower in near synchrony.

 

This link is worth noting, particularly given the recent bout of volatility across the tech sector that has pulled major US indices off their record highs, before this two-day recovery. Although US indices were firmly higher today, it remains to be seen whether momentum will continue in what looks set to be a relatively quiet week for data. The direction of Nvidia’s share price could prove pivotal; such is its market influence that it can now sway broader sentiment almost single-handedly.

 

Granted, the latest US data have signalled cracks in the economy, as reflected in Challenger’s layoff figures and the University of Michigan’s drop in consumer confidence. Both indicators suggest potential headwinds for the dollar and possible tailwinds for gold. However, since the metal has lately moved in tandem with equities, this positive relationship introduces its own complexities for traders assessing the next gold forecast. So, watch stock prices closely this week which could induce volatility in gold too.

 

Technical gold forecast and key levels to watch

 

From a technical perspective, the $4,000 level remains pivotal for gold’s short-term outlook. This area has been tested repeatedly in recent weeks, with prices dipping below it several time, but without any meaningful downside follow-through. That gave the bulls encouragement to buy the dip last week and we have now seen prices climb sharply higher. With prices breaking above both the $4,000 threshold and Friday’s high of $4,027, the near-term path of least resistance is now to the upside again for as long as this $4,000–$4,027 area now holds as support.

 

 

The key question now is whether the price of gold can hold this breakout or whether it proves a false start. For now, traders should keep a close eye on that broken resistance band around $4,000–$4,027, which now acts as support. A move back below this zone would be a warning that a deeper correction may be underway. Further support sits near $3,930—the low from last week—followed by $3,900.

 

On the upside, attention turns to the $4,100 area, where gold may encounter its next layer of resistance. A clean break above this region could invite fresh technical buying and signal a more sustained upward leg. This level was being tested at the time of writing, but things could look and feel different later in the day/week. Beyond $4,100, the next area of resistance is seen around $4200-$4220 region.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R