Gold forecast: Central bank speeches and key US data

Gold prices managed to bounce back from their overnight lows to turn positive on the day ahead of the start of the US session. Investors will be looking ahead to some central bank commentary ahead of tomorrow’s US payrolls report. We could thus be in for a busy two days ahead of Friday’s US holiday. Gold has held around the $4K area for now, but the pressure is building for a potential breakdown. I maintain a cautious gold forecast in the near-term.

 

Kevin Warch and NFP to set the tone for gold forecast

 

The US dollar has started to look like it wants to resume its advance after pausing for a couple of days ahead of some key US economic data and central bank speeches. We’ll also hear from several influential central bankers, including Kevin Warsh and the ECB’s Christine Lagarde. The main highlight will come on Thursday, when the Nonfarm Payrolls report is released a day earlier than usual. That report could set the tone for the FX markets for weeks to come. Ahead of that, we will have ISM manufacturing PMI data later this afternoon. Earlier today, the ADP report came in slightly weaker at 98K vs. 118K eyed.

 

The US dollar has started moving higher again after a brief pause, this week, most notably against the yen. The stronger US dollar has also weighed on gold prices lately. If the greenback now accelerates again then this could potentially trigger another wave of selling pressure on gold.

 

Technical gold forecast and levels to watch

 

We’ve seen a consistent pattern of lower highs and lower lows, and every time gold attempts to establish a base, sellers quickly return.

 

We may be seeing the same pattern again. Gold rallied during the final couple of sessions last week before sellers stepped back in at the start of this week, pushing prices below last week’s low.

 

Gold is now trading back around the psychologically important $4,000 level. As long as we don’t see a strong bullish reversal around this area, the path of least resistance is likely to remain to the downside.

 

A daily close below $4,000 would be particularly significant. So far, despite several attempts over the past few sessions, buyers have managed to defend that level, with daily candles continuing to close above it.

 

 

However, if the resulting bounce again peters out like the previous bullish attempts at higher levels, then a breakdown could be on the cards, potentially paving the way for a return to $3,500 in the coming weeks. Initial downside targets for XAUUSD bears are round handles like $3,900 and $3,800, should that $4K level give way more decisively. On the upside, $4098, the March low, is the first potential resistance level to watch, followed by $4,136ish. The bearish trend line then comes into focus around the $4,200 area. Thereafter, not much in the way of obvious levels until the $4,360-$4,400 area.

 

Death crossover

 

There has also been some talk of gold creating a “death crossover” which is a technical term for when the 50- moves below the 200-day average. The death crossover sounds scary, but it is merely a reflection of what has been happening to gold prices over the past few months. It is not necessarily a leading indicator, but when the moving averages are in that particular order, some technical traders would rather sell into the rallies than buy the dips. This may mean increased selling pressure in the near-term but this has no impact on the longer-term direction of gold, which is driven by fundamentals.

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R