Gold dropped over 2% on Friday although it managed to bounce off its lows and still managed to post a 2% weekly gain. That was the first weekly gain in three, showing remarkable resilience despite the fact that at least two bearish factors have been removed i.e., the US government re-opening and US-China trade truce. Friday’s drop looked like gold’s resilience was finally being undone. Yet, it held its own relatively well in terms of weekly performance and key technical levels were unbroken. But could we see some real pressure emerge in the week ahead to put a slightly bearish tilt to the gold outlook?
What about the gold outlook?
Gold ending higher for the week despite Friday’s drop shows bullish traders are still in charge of things, at least for now anyway. But I am at least a tiny bit surprised how resilient gold has been when you consider the fact we have had some bearish influences to take into account. Among other things, the most obvious being the US government re-opening. Meanwhile, the US and China recently agreed on a trade truce, which is another risk-positive development. Thus, with both these factors you’d expect that would remove some haven demand from gold. Well, so far, there is not much evidence of that, which can only mean one thing: people are still expecting to see continued central bank buying. That is another risky assumption as even central banks might be wary of overcooked prices here.
What are the key macro highlights for the week ahead?
There are a handful of global macro releases that may have indirect influences on gold via the dollar, including global PMIs on Friday. But the focus will be all on the US economy. With the government re-opening, we already know that the government won’t release certain indicators as they didn’t collect data with workers on furlough. But we could see the release of other macro indicators soon, including the jobs report for September without the unemployment rate. Anyway, Fed commentary has been a bit more hawkish, meaning there is scope for US dollar weakness should incoming data point to weakness and a rate cut in December. Such an outcome would be gold-positive, all else being equal.
Technical gold outlook and key levels to watch
Source: TradingView.com
The technical gold outlook has turned a little murky after the metal reacted off a key area between $4200 to $4250 on Friday. Here, gold was testing a prior support area that gave way during that big sell-off on 21st October, when a breakout to a new record was sharply rejected. That marked a turning point in gold’s direction for the next several days and prompted us to declare at least a temporary top in the gold outlook. Whether or not we are still in that temporary phase concerning gold’s direction remains to be seen. But a lot will now depend on what gold does next – will we see a quick recovery after Friday’s drop or whether prices will remain heavy. If the latter, then in this scenario, gold may go on to drop to test the next support level around $4,000. Below that $3930 is the next support level, and then things will get bearish if we go below that.
Meanwhile, on the upside, first resistance is now seen around $4100 and then $4145. If we see a break above these resistance levels, and the next ne fails to hold around the $4200-25 area this time and we push through it, then $4,300 is the next upside target ahead of $4,400 next, which would mark a new high for gold should we get there.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
