Gold weekly outlook: Can XAU/USD extend recovery as US-Iran ceasefire hopes grow?

Gold managed to claw back some ground over the last couple of sessions, but despite the rebound, the precious metal still ended the month in negative territory. After falling 11.5% in March, the metal edged 1% lower in April and 1.8% in May. Therefore, momentum is certainly no longer as strong as it once was, making the gold outlook more balanced ahead of a busy week for data next week. But more important than data will be and movements in the US-Iran stalemate.

 

Gold outlook improves as ceasefire extension supports sentiment

 

The turnaround towards the end of last week came after reports emerged that the United States and Iran may be close to agreeing an extension to their current ceasefire. According to several reports, the proposed agreement would extend the truce by a further 60 days and ease restrictions on shipping through the Strait of Hormuz.

 

Now, it’s important to note that nothing has been formally signed off yet. President Trump has reportedly not approved the deal, while Iranian state media has also suggested that negotiations are still ongoing.

 

Nevertheless, the prospect of an extension has been enough to improve sentiment across markets.

 

Gold rose for a second consecutive session on Friday after briefly hitting a two-month low earlier in the week. In fact, Thursday’s sell-off took prices briefly below the 200-day average and support around $4,400 area before buyers stepped back in.

 

So, part of that recovery was undoubtedly technical in nature. More on this later. Gold’s bounce from this important support zone, coincided with optimism surrounding a potential ceasefire extension pushed both oil prices and the US dollar lower.

 

A weaker dollar makes bullion cheaper for overseas buyers, while softer oil prices help ease inflation concerns and support broader risk sentiment.

 

That said, I don’t think the picture is entirely straightforward.

 

While traders have welcomed the possibility of a ceasefire extension, the broader inflation story remains very much alive. US inflation data released last week showed prices rising at their fastest pace in three years, largely driven by higher energy costs linked to the conflict with Iran.

 

As a result, markets continue to price in a higher-for-longer interest-rate environment.

 

That’s important because higher interest rates increase the opportunity cost of holding non-yielding assets such as gold. In other words, even though gold remains a popular hedge against uncertainty, elevated rates can act as a headwind.

 

And next week, traders will get another important test of that narrative with several key pieces of US economic data due for release.

 

ISM and payrolls data could shape gold outlook next week

 

The first will be the ISM Manufacturing and Services PMIs on Monday and Wednesday respectively. These surveys provide one of the clearest real-time snapshots of activity across the US economy, with markets paying particularly close attention to new orders, employment trends and price pressures.

 

Any signs that business activity is slowing could reignite concerns about economic growth and increase expectations that the Federal Reserve may eventually need to cut rates. On the other hand, stronger-than-expected readings would reinforce the view that the US economy remains resilient despite restrictive monetary policy.

 

Then, on Friday, all eyes will turn to the latest Non-Farm Payrolls report.

 

This is likely to be the biggest market-moving event of the week. Traders will be watching not only the headline jobs number, but also wage growth and the unemployment rate for clues about the Federal Reserve’s next move.

 

A stronger labour market report could push Treasury yields and the US dollar higher, which may create fresh headwinds for gold. Conversely, weaker-than-expected employment data could revive hopes of future rate cuts, potentially supporting both gold and risk assets.

 

With geopolitical developments, inflation concerns and several major economic releases all competing for attention, next week could prove pivotal in determining whether gold can build on its recent recovery or whether the broader corrective phase has further to run.

 

Next week’s gold outlook: key technical levels to watch

 

From a technical perspective, the key support area remains around $4,400. That’s where the rising 200-day moving average is beginning to converge with price action and it remains an important line in the sand for the longer-term bullish trend.

 

 

Gold last closed below its 200-day average in September 2023. This triggered a 5% drop over the next 10-11 days before prices rebounded and eventually climbed back above the average by mid-October. Since then, gold has only tested the 200-day average twice: first in November 2023 and again in March this year. In both cases, significant rallies followed the 200-day crossing. This time we’ve seen another bounce, suggesting the potential start of another rally. However, if the 200-day eventually breaks, it could be a significant turning point, marking a major shift in gold’s near-term direction.

 

A decisive break below the 200-day average could expose the next major support zone closer to $4,200, followed by $4,000 next.

 

On the upside, short term resistance remains around $4,580, a level that has repeatedly capped rallies over recent sessions. Beyond that, traders will be watching the $4,650 area, followed by $4,700 handle.

 

For now, gold appears to be caught between improving geopolitical sentiment on one side and persistent inflation concerns on the other. Until one of those narratives gains the upper hand, expect volatility and plenty of back-and-forth price action.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R