Gold outlook: XAU/USD likely to remain on the defensive

Gold prices eased lower in the first half of Monday’s session, even as the US dollar edge lower. Investors have largely looked through the latest military exchanges involving the US and Iran, especially after the two sides have apparently agreed to end days the fighting around the Strait of Hormuz and resume peace talks. The trend is clearly bearish on gold, at least for now. While the precious metal managed to post gains across the final two sessions of last week, it still finished lower overall, marking a fourth consecutive weekly decline. Attention now turns to a shortened trading week packed with important macroeconomic events. A series of speeches from leading central bankers and the latest US labour market data are likely to dictate sentiment. Even if we see a modest bounce, the gold forecast remains mildly bearish for now.

 

Gold forecast: Dollar resilience likely to hold XAU back

 

Gold’s recent weakness has been driven by a combination of macroeconomic and market-specific factors. The biggest headwind remains expectations that the Federal Reserve will maintain a restrictive monetary policy stance, which has been underpinning the US dollar.

 

At the same time, demand for traditional safe-haven assets has faded as fears of a broader conflict in the Middle East have eased. Combined with the unwinding of speculative long positions accumulated earlier in the year, this has created a more challenging environment for bullion.

 

Looking further ahead, markets continue to debate the Fed’s next move. Should incoming economic data remain resilient and inflation prove sticky, policymakers could deliver some tightening. That scenario would likely strengthen the dollar further and increase the pressure on non-yielding assets such as gold.

 

Central banks and US payrolls in focus this week

 

This week’s economic calendar offers several potential catalysts. Investors will closely follow appearances by the heads of the Federal Reserve, European Central Bank and Bank of England during the ECB’s annual policy forum in Sintra.

 

Particular attention will be paid to any fresh comments from Fed Chair Kevin Warsh after his hawkish tone at the June policy meeting unsettled financial markets. Another firm message on inflation and interest rates would probably reinforce expectations for higher US yields, a combination that has historically weighed on gold prices.

 

Elsewhere, the focus will remains on US economic releases. With Independence Day approaching, Thursday will feature a heavy schedule of data, including the closely watched non-farm payrolls report, unemployment rate and wage growth figures.

 

Following several stronger-than-expected employment reports and a more hawkish Fed meeting, investors will be looking for confirmation that the US economy remains resilient. Another robust jobs report would strengthen the case for tightening policy later this year, while any signs of labour market weakness could weigh on those expectations.

 

Technical gold forecast and key levels to watch

 

Gold staged a modest recovery at the end of last week, extending Thursday’s rebound and moving back above the psychological $4,000 mark. At the time of writing, prices were coming back down after testing the March low around $4,098, a level that previously provided support and has now acted as resistance following the recent breakdown.

 

 

The broader technical picture remains challenging for the bulls. XAUUSD continues to trade comfortably below its 200-day moving average, while the declining 21-day exponential moving average also highlights the loss of upside momentum. Until these longer-term indicators are reclaimed, the prevailing trend continues to favour sellers.

 

On the downside, the first area to monitor remains the recent swing low at $3,916, where liquidity is likely to be concentrated. A decisive break beneath that level could expose the psychological support zones at $3,900 and $3,800, with relatively little technical support in between.

 

Conversely, if buyers manage to push prices convincingly above $4,098-$4,136 resistance area, attention would turn towards the next resistance around $4,274-$4,300, coinciding with the larger bearish trend line.

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R