Gold forecast: XAU/USD in holding pattern after steep drop

After bouncing back some $300 off its lows yesterday, gold still closed the session lower by 1.9%, meaning it extended the losing run to 9 consecutive sessions. But today it was holding in the positive late in the day in Europe, with equity indices and crude oil also in a holding pattern. Will gold be able to end its losing run and climb back above $4500? Well, markets remain firmly at the mercy of geopolitical headlines, and until there’s something concrete, traders won’t taking any chances. Gold’s best bet is to see a drop in the dollar now, although without any falls in oil prices, that looks unlikely. What’s striking is the lack of convincing safe havens. Gold has shed nearly a quarter of its value at its lowest point yesterday, after creating a lower high at the start of March. While dip-buyers will be lurking, any meaningful comeback will require a corresponding drop in oil prices. If that doesn’t happen, gold could resume lower. We maintain a cautious gold forecast for now.

 

Gold unable to find much haven flows

 

Interestingly, the flows into the dollar don’t appear to be finding their way into US equities, bonds or even gold, all of which remain under pressure. Instead, investors seem content to sit in cash. Volatility has surged across asset classes, and while US equity markets have held up relatively well so far, European markets have been under intense pressure. Gold, too, has lost nearly 25% since creating an all-time high as bond yields press higher with traders pricing in rate hikes and the return of inflation. Only hope is if central banks continue to add to their reserves. But as energy and defence costs continue to rise as the conflict drags on, this may see some central banks tapping those holdings.

 

Gold forecast: Technical analysis and levels to watch

 

As a result of yesterday’s bearish close, gold has now fallen for nine consecutive sessions, suggesting that bearish momentum remains the dominant theme for the precious metal. The metal has broken through multiple support levels on its way lower, which means the onus is now on the bulls to step in. Until we see a clear reversal signal, the path of least resistance remains to the downside.

 

 

In terms of key support levels on XAUUSD, the 200-day moving average comes in around the $4,100 level, followed by the psychologically important $4,000 mark. These represent the next major downside targets and potential areas of support. On a shorter-term basis, interim support can be seen around $4,320, followed by $4,270 and then $4,230. These are important intraday levels to monitor.

 

On the upside, the key resistance zone lies between $4,400 and $4,500, where gold was residing at the time of writing. This area is clearly visible on the chart, having previously acted as a strong support zone from which the metal bounced. It could now turn into a critical resistance region. If it doesn’t and we see a daily close above this zone, then this would likely shift momentum back in favour of the bulls. Otherwise, caution is likely to remain the dominant trading approach.

 

Other levels of potential resistance to watch include $4,660 and $4,800, with $5,000 now being a long-term resistance level should prices stage a decent recovery from current levels in the coming days.

 

For now, tough, it is far too early to turn bullish on our gold forecast.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R